WASHINGTON — The Federal Reserve will release the results of the Dodd-Frank Act Stress Test on June 22, followed by the results of the Comprehensive Capital Analysis and Review on June 28, the central bank said Thursday.
Both announcements will come at 4:30 p.m., after the markets close. The tests will be conducted on 34 banks — the same institutions as last year with the addition of CIT Group — with assets of more than $50 billion.
The Fed’s stress testing program began in earnest in the wake of the 2008 financial crisis, but has since emerged as among the most important supervisory innovations of the last several decades. DFAST and CCAR share some similarities; both run a bank’s balance sheet through nine future quarters of hypothetical stress scenarios of varying intensity to see how the banks’ capital perform relative to minimum capital requirements.
There are important differences, however. DFAST examines the banks’ balance sheets with a standard capital management plan — enabling examiners to make better comparisons of the balance sheets against one another — but there is no penalty for falling below the minimum capital levels.
CCAR, by contrast, uses the firm’s actual capital management plan through the scenario, which provides a more accurate picture of how the bank would actually perform under the stress conditions. For banks that fall below the minimum capital levels, the Fed may limit dividend payments until they meet the minimum capital standards under CCAR.
Banks have a ambivalent relationship with the stress testing program. On the one hand, they note that the tests have helped them gain a better understanding of their own assets, holdings and associated risk. But they also bridle under the burden of passing the tests, whose models they do not completely understand and whose scenarios they have little say in formulating.
The Fed has been working for years to address these concerns, and in January agreed to drop the qualitative CCAR test for 21 of the 34 banks. On Thursday morning, Fed Gov. Jerome Powell, who chairs the central bank’s supervisory committee, outlined a handful of additional disclosures the Fed intends to make to banks regarding its stress testing models after this year’s results are published.