New Capital Planning Expectations for Large Financial Institutions and What It Means For You
The Federal Reserve Board (FRB) recently released regulatory guidance outlining its capital planning expectations for large financial companies. The guidance addresses many areas of the capital planning process where regulators are looking for continued improvement within large bank holding companies and attempts to clarify differences in the Fed’s expectations based on firm size and complexity. The guidance is effective for the 2016 CCAR cycle.
The Federal Reserve has provided separate guidance for two different categories of large financial institutions:
- LISCC Firms1 and ‘Large and Complex’ firms were provided capital planning guidance under SR 15-18, and
- ‘Large and Noncomplex’ firms were provided capital planning guidance under SR 15-19.
SR 15-18 Summary
Specifically, SR 15-18 applies to firms that:
- Are subject to the LISCC framework,
- Have total consolidated assets of $250 billion or more, or
- Have consolidated total on-balance sheet foreign exposure of $10 billion or more.
For the largest and most complex firms, the guidance clarifies expectations that have been previously communicated to firms, including through past Comprehensive Capital Analysis and Review (CCAR) exercises and related supervisory reviews.
SR 15-19 Summary
SR 15-19 applies to firms and ‘Large and Noncomplex’ institutions that:
- Are not otherwise subject to the LISCC framework,
- Have total consolidated assets between $50 billion and $250 billion, and
- Have total consolidated on-balance-sheet foreign exposure of less than $10 billion.
Implications of these capital planning guidelines
Both sets of guidelines (SR 15-18 and SR 15-19) lay out the governance, risk management, internal controls, capital policy, scenario design, and projection methodology expectations relating to the capital planning process. They also lay out some important distinctions between the two institution types relating to how models and model risk management are expected to be used.
We summarize some of the key differences between what is required of these two institution types in the table below.
Current 2017 LISCC Portfolio Firms
According to the Federal Reserve, here are the current LISCC firms:
- American International Group, Inc.
- Bank of America Corporation
- The Bank of New York Mellon Corporation
- Barclays PLC
- Citigroup Inc.
- Credit Suisse Group AG
- Deutsche Bank AG
- The Goldman Sachs Group, Inc.
- JP Morgan Chase & Co.
- Morgan Stanley
- Prudential Financial, Inc.
- State Street Corporation
- UBS AG
- Wells Fargo & Company
[1] Large Institution Supervision Coordinating Committee (LISCC) – the Board of Governors of the Federal Reserve has the responsibility for the supervision of systemically important financial institutions, including large bank holding companies, the U.S. operations of certain foreign banking organizations, and nonbank financial companies that are designated by the Financial Stability Oversight Council (FSOC) for supervision by the Board of Governors. A list of LISCC firms can be found at http://www.federalreserve.gov/bankinforeg/large-institution-supervision.htm.