A Better Measure to Regulate the Banks: Introduction to the Stress Test

Minghui Lu (lminghu1@binghamton.edu)

I. Introduction

1.1. Why the Banks Needed to Be Regulated

1.2. Federal Reserve’s Supervisory Tools

II. Two Approaches to Measure Capital Adequacy

I.1. The Basel Accords

I.2. The Dodd-Frank Act Stress Test and Comprehensive Capital Analysis Review

I.3. Why Stress Test Is A Better Measure than Basel Ratio

III. 2014 DFAST and CCAR Implementations

I.4. The 2014 DFAST Results

I.5. The 2014 CCAR Results

IV. Conclusion

V. Appendix 1(a) and 1(b): Minimum Capital Requirements and Result of 2014 CCAR Capital Ratios

VI. List of References

I. Introduction

The 2008 financial crisis was a consequence to the “burst of housing bubble”: the asset prices

declined drastically since 2007, causing massive amount of defaults on mortgages. Banks also suffered

from the falling asset prices, causing losses in capital and many of the banks became insolvent. As a

result, in 2008 many major financial institutions such as Bear Stearns and Lehman Brothers had to

announce bankruptcy, which provoked greater fear and on the market. Investors became more risk

averse and started to sell out equities and assets on their hands to cut off further losses. Due to the loss

of confidence, equities and real estate market plummeted and indicated the whole US economy was

slowly dragged into one of the greatest recessions since 1920’s.

1.1.Why the Banks Needed to Be Regulated

With the unwinding of this financial crisis, the public found out that the problems originated

from the bankers’ excessive greediness and ambition. The US economy was growing in a steady pace

back in a few years before the crisis. Given such a fortunate outlook of the economy, the banks began to

offer “subprime mortgages”: which is a kind of mortgage offered to individuals with higher leverage

ratio and lower credit score requirement. This move further fed up the optimism in the market and

made more people to believe that the surging asset prices would never fall. But the truth is, once the

asset prices increased to certain level, the bubble would burst and the price would eventually decline.

By then the U.S. was already too deep indebted; individual who borrowed the subprime mortgages were

no longer able to repay the loans and had to default on banks. The panic swept through the real estate

market and caused higher tides of defaults and price decline.

As a result of pursuing higher profits, the banks have contained too many so-called toxic assets

on their balance sheets. Toxic assets had the feature of high risk, which gave them higher default rate

and could easily wipe out banks’ assets value as those subprime mortgages defaulted. In other to

maintain solvency, the banks needed to sell some of the assets in lower prices to reduce leverage ratio.

However, selling assets while price plummeted would not help much, and undercapitalization of banks

also spread fear in the market and reduced investors’ confidence to the banking systems. The

government saw that panic selling on equities and assets markets has led to an unavoidable recession;

the only solution to stop this situation and to restore confidence was by capital injections into the banks

using the public funds, which would eventually increase burden to the taxpayers. The greediness of

bankers induced both the banks and the public to undertake extra risks. Deregulation and failure to

correctly assess the risks in the banking industry resulted in a national recession. Ultimately, the

government and taxpayers both had to pay for this mistakes.

1.2.Federal Reserve’s Supervisory Tools

The financial crisis exposed the absence of an efficient regulatory method that could measure

capital risk. Before the crisis, the global banking industry (including the U.S.) adapted to the so called

Basel Accords (Basel I and II) that evaluate capital adequacy of banks by measuring a variety of capital

ratios. However, the Basel I and II models were proven to be insufficient because it has underestimated

the credit risks during the financial crisis. In 2009 the Federal Reserve played the role of a supervisor and

implemented the Comprehensive Capital Analysis Review (CCAR) and the Dodd-Frank Act Stress Test

(DFAST). The Fed believed these two regulatory tools could better evaluate the capital risk of each BHC,

and improve the financial system’s resilience and robustness to adverse economic conditions.

This paper will introduce the history of the two approaches currently being used to assess and

to supervise capital adequacy of BHCs: the Basel models and the stress test. Then it will examine how

the Federal Reserve incorporated the stress test into the CCAR assessments to regulate the BHCs.

Furthermore, it will discuss the weaknesses embedded within the Basel models and how the stress test

approach could effectively eliminate them. In the final section it will illustrate the result of the 2014

CCAR assessment and DFAST; bases on the result, it will show the CCAR and DFAST’s ability to improve

financial stability by requiring the BHCs to raise capital buffer or to choose a more secured capital

distribution plan in response to potential adverse scenarios.

II. Two Approaches to Measure Capital Adequacy

The regulation of banks’ capital adequacy within the United States could be traced back to the

period after World War II. However, at that time the Federal regulatory agencies did not directly

monitor or issue any minimum capital requirement to the banks; instead it provided a set of

recommended capital ratios for the banks to follow. Without a more direct intervention, the regulatory

agencies was ineffective to prevent the decline in capital ratios among those banks. A more formal

regulatory capital standard ratios to the BHCs, which now commonly referred as the Basel I Accord, was

finally developed by the Basel Committee on Banking Supervision (BCBS) on July 15, 1988. The BCBS was

established by the central bank governors of a group of ten countries (the G-10) back in 1974; since then

the Basel I Accord became an international agreement adopted not only by the US banks, but also in

many European countries as well. The BCBS made major modifications to the Basel I during 2004 and

2010 to fix up some of the weaknesses in the Basel I, and we refer these new versions as the Basel II and

Basel III. However, during the 2008 financial crisis, people found out that the Basel Accords could not

fully access the default risk in the banking industry by just requiring the banks to reach a certain capital

ratios standard. In the mean to fix this problem, the Federal Reserve introduced the Dodd-Frank Act

Stress Test (DFAST) starting and the Comprehensive Capital Analysis Review (CCAR) in 2011. Both the

DFAST and CCAR function as regulatory tools for the government, in which the 19 largest bank holding

companies (BHCs) operating within the US must report their stress test results to the Federal Reserve.

Whenever a BHC did not achieve the capital requirement set by the government, they would be

required to increase their capital level until meeting the standard. Nowadays the stress testing method

has been routinely performed in many countries on the world.

This section provides a summary of how the Basel Accords, DFAST, and CCAR function to

measure capital adequacy in the banking industry; then it will explain why the federal stress testing was

considered to be a more advance assessment tool than the Basel Accords.

2.1. The Basel Accords

The Basel I was first established to set up an internationally standardized capital ratios

measurement in 1988, and first adopted by the Group-of-Ten countries (G-10). The process of

estimating capital adequacy under the Basel I framework was to separate each bank’s assets based on

their relative risk level into one of five categories. The risk weighted assets (RWA) was calculated by

multiplying the risk level and the weights percentage of assets in each category, and then summing up

all five categories and get the total RWA value. The banks used the tier 1 capital, which consists of the

common and preferred equity, to divide by the RWA and to get the tier 1 common capital ratio. Other

regulatory capital ratios such as tier 1 equity common ratio was obtained with a similar method.

According to the Basel I, all banks needed to meet the minimum tier 1 common capital ratio of 4

percent. However, this ratio could not accurately measure credit risk since “the measurement

discouraged the accumulation of low risk loan to the private sector while encouraging banks to take risks

that were underweighted by the standard” according to (Wall, 2013). Thus the banks would pursue

higher-return investment which the risk was underestimated by the Basel I regulation. In order to cover

the loophole, in 2004 the rules has been revised and was then called the Basel II. In addition to the Basel

I’s measurement which solely relied on the probability of default, the Basel II added in extra factors in its

calculation such as exposure at default, loss given default, and effective maturity. Basel II provides three

different measures of capital adequacy (3 pillars). The standardized approach relies on level RWA ratio

to show relative riskiness of different banks exposures. The internal ratings based (IRB) and advanced

IRB approaches use historical data to estimate expected capital losses.

Even with taking extra factors into consideration and using a more complex formula, the Basel II

ratio were still proven to underweight credit risk. Furlong noted that throughout 2007 and 2008, the

large bank holding companies, including the major financial institutions who failed during the financial

crisis, still reported the tier 1 common ratio to be above 8 percent on average. This fact sufficiently

showed that the Basel approaches (I and II) could not accurately represent the real risk level.

In the attempt to restore investors’ confidence, the BCBS called for a review on the Basel II

standard and made further modifications to the model. The revision, as known as the Basel III, was

issued by the BCBS in December 2010. It incorporated several changes, including “new limitations on the

instruments that qualify as capital, enhanced risk coverage, the adaptation of a new leverage

requirement, countercyclical capital buffers, and new minimum liquidity standards” (Wall, 2013). The

adaptation of the Basel III enhanced the reliability of the Accords; however, Wall argued that compares

to the stress tests, there were still certain weaknesses existed in the Basel III model, which will be

discussed in the subsection 2.3.

2.2. The Dodd Frank Act Stress Test and Comprehensive Capital Analysis Review

In the financial world, stress test are used to test the ability of financial institutions to withstand

an adverse economic environment. Usually one or more sets of hypothetical scenarios with several

variables were used in indicating a weak economy (such as dramatic increase of unemployment rate,

decline of GDP, and change of interest rate, etc.). These financial institutions have started to conduct

internal stress tests to evaluate their own capital adequacy since 1990’s. In 2009 the Federal Reserve

System announced the initiation of the Supervisory Capital Assessment Program (SCAP). The Federal

Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance

Corporation (FDIC) became the federal supervisors to conduct the SCAP. The 19 largest domestic BHCs

with a total asset exceeding $100 billion were required to run the stress test annually and “project the

losses, revenues, and loan loss reserve needs over a two-year, forward looking horizon under two

economic scenarios (baseline, and severely adverse scenarios) provided by the supervisors” (Beverly et.

al,2009). The institutions who failed the stress tests were required to increase their capital buffer by

issuing new capitals.

In a Federal Reserve Bank of New York Staff Report (2009), the authors illustrated an important

function of the SCAP. In the report, Beverly pointed out that SCAP had features of “macroprudential and

microprudential supervision” (Beverly et. al, 2009). To restate it in a more comprehensible way: the

stress test not only independently evaluated the resilience of each companies and provided protections

to owners and investors of specific firms during the adverse economic condition (microprudential

regulation); it also assessed the financial stability of the entire US economy by pooling the estimated

losses of each BHC, and to determine the appropriate amount of capital buffer such that the economy

would suffer the least amount of losses from the risks caused by individual firms (macroprudential

regulation). This statement shows an advantage of running a standardized stress test supervised by the

government, which allowed the supervisors to thoroughly consider the risks in a national scale rather

than within each company.

Building on the SCAP, the Federal Reserve also ran the stress tests as a part of the

Comprehensive Capital Analysis and Review (CCAR) starting in 2011. As a complementary part of the

CCAR, the section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the

“Dodd-Frank Act”) stated that all the financial institutions with a size of assets over $10 billion (occ.gov)

were subjected to annual mandatory stress test (DFAST); each covered company will be given three

economic scenarios (baseline, adverse, and severely adverse scenarios) provided by the supervisors.

Additionally large BHCs were required to conduct their own semiannual stress tests using two of their

own supplied scenarios. According to the Board of Governors of the Federal Reserve System (BoGoFRS),

the stress test aims “to ensure that large financial institutions have robust, forward-looking capital

planning and sufficient capital to continue operations throughout times of economic and financial

stress” (BoGoFRS, 2013). In order to pass the stress test, each BHC needs to maintain the post-stress tier

1 common ratio exceeding 5 percent and post-stress regulatory capital ratios above the minimum

requirements (1). And also, the covered institutions needed to submit their proposed capital distribution

plans (share buyback and issuing dividends) in the next four quarters for Federal Reserve approval. The

supervisors would assess the capital distribution plan qualitatively to ensure the banks have reasonable

assumptions and analysis when planning the future risk-management practices. In addition, the CCAR

also required participants to report their ability to meet the Basel III capital requirements.

If the BHCs fail to meet the CCAR standard, instead of mandatorily raising capital, the Federal

Reserve would reject some BHCs’ plans for capital distributions, such as the shares buying-back and

issuance of dividends. Since such capital distribution plans would be favorable to a company’s stock

price, the BHCs would had a motivation to pass the stress tests in order to effectively execute their

capital distribution plans.

Despite of the close connection between the Dodd-Frank Act Stress Test and the Comprehensive

Capital Analysis Review, there is significant difference on the capital action assumptions with these two

projections. By the DFAST, the Federal Reserve would use a standardized set of capital action

assumptions, such as assuming common stock dividend payout rate is constant over the year; scheduled

dividend, interest, principal payments, or issuance of common stock would not be taken into account. In

contrast, the CCAR would adjust the capital level according to the change of common stock or dividend

level in the test. As a result, the ratio estimated by the DFAST and CCAR should expect to be different.

2.3. Why Stress Test Is a Better Measure than Basel Ratio

The Basel Accords have been developed for over two decades. These models have always

functioned as the most important regulatory assessment of capital adequacy in the U.S. until they were

proven to underestimate credit risks during the 2008 financial crisis. After that, they were substituted by

the CCAR and DFAST. This provoked a question to the supervisors: How could stress test better evaluate

the capital adequacy of the BHCs than the Basel models do? This subsection will illustrate the difference

between two measures and the features that stress test has and are not existed in the Basel ratio.

First of all, the Basel models rely on the historical data to forecast the bank’s loss distribution

function in the future with various asset categories. These distributions were used to estimate the

probability of losses and amount of capital buffer each bank should possess to prevent from insolvency.

The Basel II model calculated the required capital buffer at a 99.9% level of confidence, which means

that the banks who have high enough capital ratio should expect to suffer a loss exceeding their capital

level only once in a thousand year. However, since all the numbers being used to forecast the loss

distributions were taken directly from the historical data or from the financial statements of the bank,

this estimation of expected loss would only hold true if the economy continue its moderate growth pace

similar to the past few years. If facing a severely adverse scenario likes what have occurred in 2007, the

estimated loss distribution would not accurately reflect the capital buffer needed for such a shock.

In comparison, the stress test allows the supervisors to set up hypothetical adverse scenarios

that have not been observed in the recent past but plausible to occur in the future. Such as a decline of

GDP and asset prices, or increase of interest rate that lead to reduction in asset values. Then the BHCs

need to come up with the appropriate capital allocation plan to ensure sufficient capital level at the end

of one or more periods. The projection on required capital buffer based on specific adverse scenarios

could better help to prepare for an unexpected downturn of economy in real life.

The second weakness of the Basel ratio is that the model only measures capital adequacy at a

single point in time. Thus if the each firms calculate the Basel ratios by plugging in accounting values on

their financial statements, the ratios would only reflect capital adequacy up to the point of the issuance

of the financial statement; thus the expected losses in future would not be recognized. While the Basel

ratios are static, the stress test measure is more dynamic. The stress test have a longer time horizon; the

supervisors require BHCs to report capital sufficiency each quarter within the time horizon, for a total of

nine periods. Even though the stress tests also relied on accounting measure of capital, the long time

horizon and active adjustment of capital level would allow banks to foresee potential losses in each

particular scenario that are unable to recognize under current data.

Furthermore, Wall (2013) provided several other reasons to explain why Basel ratios might not

be a good measurement of risk. According to Wall, the BHCs could intentionally shrink their overall

portfolio while retaining the same allocation of capital in order to “reduce risk”. But “the reduction in

the supply of credits might hinder economic growth (or deepen a recession)” (Wall, 2013). And also,

Wall was concerned that banks might choose data and models that produce the lowest risk weights. This

would not be a problem in the stress tests because the supervisors would provide a standardized model

for the BHCs to use.

III. 2014 DFAST and CCAR Implementations

This section is going to examine the results of the 2014 Dodd-Frank Act Stress Test (DFAST) and

Comprehensive Capital Analysis Review (CCAR).

3.1. The 2014 DFAST Results

The Dodd-Frank Act requires the Federal Reserve to conduct an annual supervisory stress test

on large BHCs and all nonbank financial institutions with a total assets value over $10 billion (2). The

Federal Reserve would project the net revenue, net losses, the post-stress capital level, and the

regulatory capital ratios based on the given scenarios. In addition, the Dodd-Frank Act requires the

covered companies to conduct two company-run stress tests each year. The BHCs with assets over $50

billion must also conduct a “mid-cycle” test and report the result to the Federal Reserve by July 5.

Under the stress test rules, by each November the Office of the Comptroller of the Currency

(OCC) would provide three identical sets of scenarios for both the supervisory and the company-run

stress test that are classified by different stress levels (baseline, adverse, and severely adverse). Each

scenario included a total of 28 variables; 16 of them capture the economic activities, asset prices, and

interest rate in the US economy and the remaining 12 variables are real GDP growth, inflation, and

exchange rate within the 4 country blocks. Within a time horizon of nine quarters, the severely adverse

scenario featured “a deep recession in the United States, Europe, and Japan, significant decline in asset

prices and increases in risk premia, and a marked economic slowdown in developing Asia” (2014 DFAST

Result, 2014). The adverse scenario depicted a “weakening in economic activities across all countries

and deepen of yield curve”. In order to more accurately predict global market shocks, 6 BHCs with large

trading and private-equity exposures and higher counterparty risks will be subjected to two more

variables in their adverse and severely adverse scenarios.

The Federal Reserve introduced some key changes to the 2014 DFAST. In the stress test, the

Federal Reserve independently projected the balance sheet and risk-weighted assets (RWAs) for each

BHCs. This improvement helped to prevent capital mismeasurement. Furthermore, the 2014 DFAST

adapted a revised capital framework that implemented the Basel III regulatory capital reform. The

revised framework added a new capital ratio (tier-one equity ratio) and affected others regulatory

capital ratios as well by changing the risk level in each asset category. Finally, the Federal Reserve also

disclosed the results of stress test conducted under the adverse scenario in the 2014 DFAST report, in

comparison to only disclosing severely adverse scenario results in the past years. This change enhanced

transparency and provided the risk characteristics to the public of each BHCs based on their capital

actions.

The result of 2014 DFAST suggested that over the nine-quarter period all of the 30 BHCs who

participated in the test would expected to experience an aggregated loss of $217 billion under the

severely adverse scenario and an expected loss of $130 billion under the adverse scenario. The

substantial losses would lead to a dramatic decrease of tier 1 common ratio, from 11.5 percent in the

third quarter of 2013 to a post-stress level of 7.8 percent in the fourth quarter of 2015.

3.2. The 2014 CCAR Results

In March 2014, the Federal Reserve announced the result of the 2014 Comprehensive Capital

Analysis Review. Compare to the previous year, the 2014 CCAR covered 30 large BHCs, 12 of them newly

joined the CCAR exercises. The CCAR required these 30 BHCs (with a consolidated assets over $50

billion) to submit an annual capital distribution plan to the Federal Reserve for review. According to the

report, the capital plan must include the following: “ the BHC’s internal processes for assessing capital

adequacy; the policies governing capital actions such as common stock issuance, dividends, and share

repurchases” (CCAR 2014 assessment Framework and Result, 2014).The submitted plans would be

assessed by over 120 economists and analysts in Federal Reserve, both quantitatively and qualitatively

to determine whether the plans could provide the BHCs a robust process on managing their capital

resources. According to the Dodd-Frank Act, each covered company must conduct the DFAST and reach

the minimum regulatory capital ratios level over a nine-quarter time horizon. The capital plans that got a

below-standard ratio during any time period in the stress test would be considered as quantitatively

unqualified and need to resubmit an adjusted proposal.

The qualitative assessment carried out by the Fed was important because each BHC participated

in the CCAR differed significantly in size and complexity; and each company is expected to face specific

idiosyncratic risks while conducting the stress test and these risks could not be fully captured by the

numerical result of a standardized test. Therefore even if a BHC passed the stress test, the Federal

Reserve may object to that BHC’s capital plan base on qualitative reasons.

Over the thirty BHC’s who submitted 2014 capital plans, the Federal Reserve has rejected five of

them, including Citigroup Inc., HSBC North America Holdings Inc., RBC Citizens Financial Group,

Santander Holding USA, Inc., and Zions Bancorporation. All four other banks were rejected based on the

qualitative reason except for Zion.

The Federal Reserve’s reasons to reject Citigroup’s capital plan reflected that the Fed had higher

expectation for the large and complex BHCs. The Fed observed Citigroup’s inability to project revenue

and losses using a more sophisticated model and its inability to adequately reflect risk involved in its full

range of business activities in the internal stress test. In contrast, the HSBC, Santander, and RBS Citizens

were both new to the CCAR practices, and they were unable to develop appropriate capital planning

process to meet the Fed’s expectation due to the deficiency in estimating revenue and loss, and also lack

of governance and internal control during the process.

Out of all the BHCs that conducted the DFAST in 2014, these three BHCs – Bank of America

Corporation, Goldman Sachs Group, Inc., and Zion Bancorporation were projected to fail in meeting the

regulatory capital ratio on at least one period based on their original planned capital actions. After

resubmission, Goldman Sachs and Bank of America were able to pass the stress test, while Zions did not

resubmit its capital action (3).

Since the 30 BHCs hold 80 percent of the total assets of all U.S. BHCs, conducting the CCAR

would improve the financial resilience in the banking industry by increasing the capital holdings. A graph

suggested that the aggregated tier 1 common equity ratio of the 30 BHCs doubled from 5.5 percent in

the first quarter of 2009 until the third quarter of 2013. The increase in capital ratio would effectively

strengthen the banking industry.

IV. Conclusion

The decline of house prices in the U.S. at the end of 2007 turned out to be an unexpected

disaster: Banks and financial institutions started lending money to individuals with low credit scores

when the US economy was benign. A lot of people had limited knowledge about the market still turned

into aggressive speculators because the strong growth in real estate prices showed no signal of slowing

down. The combine of two factors led the housing bubble to swell up into an enormous monster. When

the houses price showed a slight tendency to decline, many investors who borrowed the subprime

mortgages could not afford to repay and had to default on banks. The continuing decline in the real

estate market created a big wave of defaults and eventually, some financial institutions became

insolvent because of the evaporation of assets. Major firms such as Bear Stearns and Lehman Brothers

were caught into this crisis and had to file for bankruptcy. This further deepened the fear on the market

and eventually led the entire economy fell into great recession. All of these were caused by the

deregulation of the financial institutions and bank holding companies (BHCs), which imposed great risks

not only to the firms, but also to the economy.

One of the lessons people learned in the 2008 Financial Crisis was that the existing regulatory

measures of capital adequacy to the financial institutions were not strong enough. Until 2007, the U.S.

have been using the Basel models to measure the capital ratios of a firm. However, the Basel ratios had

several weaknesses and tended to underestimate the credit risks within the industry. In order to restore

confidence on the market, the Federal Reserve initiated the Supervisory Capital Assessment Program

(SCAP) in 2009 and required 19 major bank holding companies to conduct mandatory stress tests. In the

stress test the covered companies would need to meet a set of capital ratio standards under a variety of

adverse scenarios. Building on the SCAP, the government passed the Dodd-Frank Act in 2010 and

demanded each large BHC (with total asset over $10 billion) not only to conduct a standardized

supervisory stress test (DFAST) every year, but also report the result to the Federal Reserve.

Furthermore, the Federal Reserve implemented the Comprehensive Capital Analysis Review (CCAR) to

BHCs with over $50 billion total assets and required them to submit a proposed capital distribution plan

annually. The Fed would assess the credit risk in each banks based on both their proposal and result of

the DFAST and then determined whether the BHCs could retain sufficient capital level to withstand

possible adverse shocks in the future.

Given the two different approaches to measure capital adequacy, in two of his working paper

Larry D. Wall argued that the stress test would be a better regulatory tool used to measure capital

adequacy than the Basel models because the stress test is more dynamic and more considerate to each

particular scenario. Wall pointed out that the stress test could mitigate many estimation errors created

by mismeasurement in the Basel models because stress test scenarios could include specific risk

components to the scenario and extend to longer time span, such that the tested firms would recognize

potential losses embedded in the future time and thus be able to eliminate the mismeasurement.

In 2014, a total of 30 BHCs and financial institutions participated in the CCAR. They submitted

their capital distribution to Federal Reserve for approval. In according to the Dodd-Frank Act, they were

also required to conduct a supervisory stress test and two company-run stress tests under three

hypothetical scenarios (baseline, adverse, and severely adverse scenarios) provided by the Office of the

Comptroller of the Currency (OCC). The Federal Reserve evaluated the capital plan for each covered

company and decided to reject five of the BHCs’ proposals for either qualitative or quantitative reasons.

The result of 2014 CCAR and DFAST suggested that the Fed maintained high expectations to each BHC

and imposed high standards to their capital adequacy in order to provide a more robust financial

system. The numerical evidence also supported that by conducting the stress tests, the BHCs were

expected to endure a substantial aggregated loss under both adverse and severely adverse scenarios.

Therefore the average tier 1 equity common ratio (which is one of the main regulatory capital ratios

used in the stress test) doubled from 2009 to the last quarter of 2013, which showed that the BHCs have

become more prepared for potential future credit crisis.

IV. Appendix 1(a) and 1(b): Minimum Capital Requirements and Result of 2014 CCAR Capital Ratios

(Source: Board of Governors of the Federal Reserve System, Comprehensive Capital Analysis and Review 2014:

Assessment Framework and Results, p13)

VI. List of References

Board of Governor of the Federal Reserve System. (2015 Feb. 13). 2014 Supervisory Scenarios for Annual

Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule. 1-28.

Retrieved from http://www.federalreserve.gov/bankinforeg/bcreg20131101a1.pdf

Board of Governor of the Federal Reserve System. (2015 Feb. 13). Comprehensive Capital Analysis and

Review 2014 Summary Instructions and Guidance. 1-48. Retrieved from

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131101a2.pdf

Board of Governor of the Federal Reserve System. (2015 Mar. 26). Comprehensive Capital Analysis and

Review 2014: Assessment Framework and Results. 1-30. Retrieved from

http://www.federalreserve.gov/newsevents/press/bcreg/ccar_20140326.pdf

Board of Governor of the Federal Reserve System. (2015 Feb. 19). Dodd-Frank Act Stress Test 2014:

Supervisory Stress Test Methodology and Results. 1-82. Retrieved from

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20140320a1.pdf

Fratianni, Michele, & Marchionne, Francesco. (2015 Mar. 16). The Role of Banks in the Subprime

Financial Crisis. 1-38. Retrieved from http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2009-02-

fratianni-marchionne.pdf

Hirtle, Beverly; Schuermann, Til, & Stiroh, Kevin. (2015 Mar. 24). Macroprudential Supervision of

Financial Institutions: Lessons from the SCAP. 1-17. Retrieved from

http://fic.wharton.upenn.edu/fic/papers/09/0937.pdf

Touryalai, Halah. (2015 Feb. 19). Wall Street’s March Madness: What to Know about Bank Stress Tests.

Retrieved from http://www.forbes.com/sites/halahtouryalai/2014/03/19/wall-streets-march-madness-

what-to-know-about-bank-stress-tests/

Wall, Larry D. (2015 Feb. 19). Basel III and the Stress Tests. Retrieved from

https://www.frbatlanta.org/cenfis/publications/notesfromthevault/1312

Wall, Larry D. (2015 Feb. 19). Measuring Capital Adequacy Supervisory Stress Tests in a Basel World. 1-

26. Retrieved from https://www.frbatlanta.org/documents/pubs/wp/wp1315.pdf.

Wall, Larry D. (2015 Feb. 20). The Adoption of Stress Testing: Why the Basel Capital Measures Were Not

Enough. 1-21. Retrieved from

https://www.frbatlanta.org/media/Documents/research/publications/wp/2013/wp1314.pdf