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Fed releases 2018 CCAR, DFAST scenarios

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Fed releases 2018 CCAR, DFAST scenarios

The Federal Reserve Board has released its Comprehensive Capital Analysis and Review and Dodd-Frank Act stress-test scenarios.

Subject to both quantitative and qualitative evaluations are 18 banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and State Street Corp.

On the same list are Bank of New York Mellon Corp., U.S. Bancorp, Capital One Financial Corp., PNC Financial Services Group Inc., HSBC North America Holdings Inc. and TD Group US Holdings LLC.

Meanwhile, 20 companies with less complex operations, will be subject to only the quantitative portion of the CCAR. They are Ally Financial Inc., American Express Co., Discover Financial Services, Northern Trust Corp., BB&T Corp., CIT Group Inc., Citizens Financial Group Inc., Comerica Inc., Fifth Third Bancorp, Huntington Bancshares Inc., KeyCorp, M&T Bank Corp., SunTrust Banks Inc., Regions Financial Corp., Zions Bancorp., BBVA Compass Bancshares Inc., Santander Holdings USA Inc., MUFG Americas Holdings Corp., BMO Financial Corp. and BNP Paribas USA Inc.

BNP Paribas USA is also one of six entities with a foreign parent participating for the first time this year. The others are Barclays US LLC, Credit Suisse Holdings (USA) Inc., UBS Americas Holding LLC, Deutsche Bank AG's DB USA Corp. and Royal Bank of Canada's RBC USA Holdco Corp.

The companies will test their metrics against the Federal Reserve's hypothetical scenarios. Under the severely adverse one, U.S. real GDP drops to a level that is 7.5% below the pre-recession peak, causing short-term Treasury rates to fall and stay near-zero for several quarters. Unemployment rises to 10%. House prices fall 30%, while commercial real estate prices decline by 40%.

Equity prices slide 65%, and equity market volatility surges.

Severe recessions occur in the euro area, the U.K. and Japan. Recession in developing Asia, on the other hand, will be shallow and brief.

Companies with much trading activity, i.e. JPMorgan, Goldman Sachs, Morgan Stanley, BofA, Citi, Wells Fargo, BNY Mellon and State Street, will additionally incorporate global market shock in their scenarios.

CCAR participants must submit their capital plans and stress-testing results by April 5. Results will be announced by June 30.