Federal Reserve Press Release -- Capital Plans (R-1425)

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Press Release

Release Date: November 22, 2011
For immediate release
The Federal Reserve Board on Tuesday issued a final rule requiring top-tier U.S. bank holding
companies with total consolidated assets of $50 billion or more to submit annual capital plans for
review.
Also, the Federal Reserve launched the 2012 review, issuing instructions to the firms, including the
macroeconomic and financial market scenarios the Federal Reserve is requiring institutions to use to
support the stress testing used in their capital plans. As a part of the review, known as the
Comprehensive Capital Analysis and Review (CCAR), the Federal Reserve in 2012 will carry out a
supervisory stress test based on the same stress scenario provided to the firms to support its analysis
of the adequacy of the firms' capital.
The aim of the annual capital plans, which build on the CCAR conducted earlier this year, is to
ensure that institutions have robust, forward-looking capital planning processes that account for
their unique risks, and to help ensure that institutions have sufficient capital to continue operations
throughout times of economic and financial stress. Institutions will be expected to have credible
plans that show they have sufficient capital so that they can continue to lend to households and
businesses, even under adverse conditions, and are well prepared to meet regulatory capital
standards agreed to by the Basel Committee on Banking Supervision as they are implemented in the
United States. Boards of directors of the institutions will be required each year to review and
approve capital plans before submitting them to the Federal Reserve.
Under the final rule, the Federal Reserve annually will evaluate institutions' capital adequacy,
internal capital adequacy assessment processes, and their plans to make capital distributions, such as
dividend payments or stock repurchases. The Federal Reserve will approve dividend increases or
other capital distributions only for companies whose capital plans are approved by supervisors and
are able to demonstrate sufficient financial strength to operate as successful financial intermediaries
under stressed macroeconomic and financial market scenarios, even after making the desired capital
distributions.
In addition to issuing the final rule, the Federal Reserve Board on Tuesday issued instructions
outlining the information the Federal Reserve is seeking from the firms and the analysis the Federal
Reserve will do for the CCAR in 2012. There are two sets of instructions: one for the 19 firms that
participated in the CCAR in 2011, the other for 12 additional firms with at least $50 billion in assets
that have not previously participated in a supervisory stress test exercise. The level of detail and
analysis expected in each institution's capital plan will vary based on the company's size,
complexity, risk profile, and scope of operations.
The instructions include a supervisory stress scenario that will be used by all of the firms and the
Federal Reserve to analyze firms' capital needs to withstand such a scenario while continuing to act
as a financial intermediary. The supervisory stress scenario is not the Federal Reserve's forecast for
the economy, but is designed to represent an outcome that, while unlikely, may occur if the U.S
economy were to experience a deep recession while at the same time economic activity in other
major economies were also to contract significantly. For the 19 firms that participated in the CCAR
http://www.federalreserve.gov/newsevents/press/bcreg/20111122a.htm

11/23/2011

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in 2011, the Federal Reserve will conduct a supervisory stress test using internally developed
models to generate loss estimates and post-stress capital ratios.
In addition to the macroeconomic scenario provided by the Federal Reserve, the six largest firms
will be required to estimate potential losses stemming from a hypothetical global market shock. The
global market shock will be based on market price movements seen during the second half of 2008,
a time of significant volatility, with adjustments made to incorporate potential sharp market price
movements in European sovereign and financial sectors.
Firms' capital adequacy, and their plans to make capital distributions, will be assessed against a
number of criteria, including projected performance under the stress scenarios provided by the
Federal Reserve and the institutions' internal scenarios. After evaluating the institutions'
submissions, the Federal Reserve will publish the results of the supervisory stress tests for each of
the 19 institutions including the results of the market shock for the six institutions with large trading
operations.
Institutions will be required to submit their capital plans by January 9, 2012.
The capital planning requirements are consistent with the Federal Reserve's obligations to impose
enhanced capital and risk-management standards on large financial firms under the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
Attachments:
Questions-and-Answers (PDF)
Federal Register Notice, Capital Plan Final Rule (PDF)
Federal Register Notice, Data Collection (PDF)
Instructions for 19 Firms (PDF)
Instructions for Other Firms (PDF)

For media inquiries, call 202-452-2955.

http://www.federalreserve.gov/newsevents/press/bcreg/20111122a.htm

11/23/2011