Congratulations to my valued client Lourenco Miranda on the publication of “Capital Planning and Stress Testing Under CCAR,” which I had the honor to edit as an early draft.
The Comprehensive Capital Analysis and Review (CCAR) is an annual exercise by the Federal Reserve to assess whether the largest bank holding companies operating in the United States have sufficient capital to continue operations throughout times of economic and financial stress and that they have robust, forward-looking capital-planning processes that account for their unique risks.
As part of their fiduciary responsibilities to a bank holding company, the board of directors and senior management bear the primary responsibility for developing, implementing, and monitoring a bank holding company’s capital planning strategies and internal capital adequacy process.
As part of this exercise, the Federal Reserve evaluates an institution’s capital adequacy, internal capital adequacy assessment processes, and their individual plans to make capital distributions, such as dividend payments or stock repurchases.
The Federal Reserve may object to a bank’s capital plan based on either quantitative or qualitative grounds. If the Federal Reserve objects to a bank’s capital plan, the bank may not make any capital distribution unless the Fed indicates in writing that it does not object to the distribution. Basically, the Fed will say, “You can’t return any money to your shareholders, because if you do so, your financial foundation will be weakened, and we can’t allow that.”
Dr. Lourenco Miranda is currently Managing Director, Head of CCAR: Stress Testing, Scenarios, Modeling, and Governance with Societe Generale (Corporate and Investment Banking). Previous to this he was Managing Director, Global Operational Risk Quantification, Economic Capital, Scenario Analysis, Stress Testing and CCAR at AIG. He has 18 years of progressive and relevant experience in Risk Management, Economic Capital, Capital Adequacy Framework, Risk Governance and Regulatory Practices, Risk Policies & Procedures and Modeling for all financial risk types, product lines and client coverage in Financial Institutions in all continents and different regulatory environments or jurisdictions.
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