Financial Services

Making Lemonade from Stress Testing Lemons

The Brighter Side of Banks’ Comprehensive Capital Assessment and Review Program

Each year, the Federal Reserve mandates that the largest banks go through a meticulous capital planning exercise that assess whether they have sufficient capital and capital generation to survive stressful economic and market conditions. The Comprehensive Capital Analysis and Review (CCAR) program has been laborious and costly for banks but has also made more dynamic and disciplined discussions on growth targets possible.

The real benefit of stress testing and CCAR may lie in its potential for facilitating a more rigorous, robust and credible strategic planning process. Stress testing grew out of the crisis, there was a very tangible question that had to be asked, can the banks survive these very stressful scenarios? It has since evolved into banks building an entire machinery that allows them to project dynamically the main financials of the bank: the balance sheet and the income statement. It’s been very painful, and has left a sour taste in a lot of executive’s mouths, but one of the things that we’re finding is that now that this machinery is built,  we are literally able to make lemonade out of these lemons.

Stress Testing Strategies

Bank’s Comprehensive Capital Assessment And Reviews Help Set Strategies By Stress Testing Alternatives

Current position

CCAR Video Library

Michael Duane and Til Schuermann, both New York-based partners in Oliver Wyman’s Financial Services practice, on the brighter side of the banks’ Comprehensive Capital Assessment and Review program.

Making Lemonade from Stress Testing Lemons