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How The Federal Reserve Assesses Firms' Capital Plan Submissions, Part 1 – Glass & Goldberg | Financing, Property & Bankruptcy Law
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How The Federal Reserve Assesses Firms’ Capital Plan Submissions, Part 1

Annually in April, firms submit capital plans to the Federal Reserve. These capital plans include detailed descriptions of the firms’ capital planning practices, including descriptions of their policies governing capital actions and their internal procedures for assessing capital adequacy. Federal Reserve experts expend three months conducting an analysis of these policies and processes. Information gathered by related supervisory work conducted through the year also contributes to the analysis.

Two groups of supervisors conduct an initial assessment of each firm’s capital plan submission. The first group consists of dedicated supervisory teams (DSTs), which are composed of Federal Reserve staff that focus on a single firm, assess the adequacy of firms’ capital planning practices related to governance, risk management, internal controls, and scenario design. The capital planning review team works closely with DSTs to provide a horizontal assessment across the DSTs’ areas of focus.

The second group consists of horizontal evaluation teams (HETs) which are composed of Federal Reserve staff focus on the examination of practices across multiple firms rather than a specific financial institution for purposes of the Comprehensive Capital Analysis and Review (CCAR) annual review and summary. Some HETs assess the reasonableness of firms’ stressed loss, revenue, and expense estimation approaches, as well as the firms’ underlying governance and control mechanisms for these approaches.

Both the assessments of the DST and HET, based on previously articulated supervisory guidance and expectations, consider whether a firm’s capital planning practices enable it to reliably estimate its capital needs looking forward, assuming dynamic changes that may occur to its risk profile. This horizontal review assists the Federal Reserve in consistently applying its supervisory expectations to its assessment of each firm’s capital planning practices.

Stay tuned for more in the next installment further detailing this process.

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