Capital adequacy requirements continue to evolve. Are you prepared?

by Guest Contributor 2 min read March 17, 2015

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By: Linda Haran

Complying with complex and evolving capital adequacy regulatory requirements is the new reality for financial service organizations, and it doesn’t seem to be getting any easier to comply in the years since CCAR was introduced under the Dodd Frank Act.  Many banks that have submitted capital plans to the Fed have seen them approved in one year and then rejected in the following year’s review, making compliance with the regulation feel very much like a moving target.  As a result, several banks have recently pulled together a think tank of sorts to collaborate on what the Fed is looking for in capital plan submissions.

Complying with CCAR is a very complex, data intensive exercise which requires specialized staffing.   An approach or methodology to preparing these annual submissions has not been formally outlined by the regulators and banks are on their own to interpret the complex requirements into a comprehensive plan that will ensure their capital plans are accepted by the Fed.  As banks work to perfect the methodology used in this exercise, the Fed continues to fine tune the requirements by changing submission dates, Tier 1 capital definitions, etc.

As the regulation continues to evolve, banks will need to keep pace with the changing nature of the requirements and continually evaluate current processes to assess where they can be enhanced.  The capital planning exercise remains complex and employing various methodologies to produce the most complete view of loss projections prior to submitting a final plan to the Fed is a crucial component in having the plan approved.  Banks should utilize all available resources and consider partnering with third party organizations who are experienced in both loss forecasting model development and regulatory consulting in order to stay ahead of the regulations and avoid a scenario where capital plan submissions may not be accepted.

Learn how Experian can help you meet the latest regulatory requirements with our Loss Forecasting Model Services.

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