Fed, OCC release scenarios for 2019 CCAR, stress-test exercises

Scenarios that banks, holding companies and supervisors will use for the 2019 comprehensive capital analysis and review (CCAR) and Dodd-Frank Act stress-test exercises were released Tuesday by the Federal Reserve Board and Office of the Comptroller of the Currency (OCC).

Scenarios for the 2019 stress tests are baseline, adverse, and severely adverse. The baseline scenario features a moderate economic expansion through the scenario period. The adverse scenario, features a moderate recession in the United States, as well as weakening economic activity across all countries included in the scenario. The severely adverse scenario features a severe global recession in which the U.S. unemployment rate rises by more than 6 percentage points to 10%; with elevated stress in corporate loan and commercial real estate markets.

The Fed said the adverse and severely adverse scenarios describe hypothetical sets of events (not forecasts) designed to assess the strength of banking organizations and their resilience, and the baseline scenario is in line with average projections from surveys of economic forecasters. “It does not represent the forecast of the Federal Reserve,” it said.

Each scenario includes 28 variables – such as gross domestic product, the unemployment rate, stock market prices, and interest rates – covering domestic and international economic activity. Along with the variables, the Fed Board is publishing a narrative description of the scenarios that also highlights changes from last year.

In Tuesday’s announcement, the Fed also said it will be providing relief to less-complex firms from stress testing requirements and CCAR by effectively moving the firms to an extended stress test cycle for this year. The relief applies to firms generally with total consolidated assets between $100 billion and $250 billion. It said that, as a result, the less-complex firms will not be subject to a supervisory stress test during the 2019 cycle and their capital distributions for this year will be largely based on the results from the 2018 supervisory stress test. “At a later date, the Board will propose for notice and comment a final capital distribution method for firms on an extended stress test cycle in future years,” it said.

Also Tuesday, the Fed release a set of changes intended to bring more transparency to the stress testing program. (See story.)

Federal Reserve Board releases scenarios for 2019 Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act stress test exercises

Fed: 2019 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule

OCC Releases Dodd-Frank Act Stress Test Scenarios for 2019