Laptop screen showing Vena's blog.

How To Pass A Bank Stress Test: Industry Analysts Explain CCAR Best Practices

June 23, 2014 Evan Webster  
LinkedIn Twitter Facebook

Institutions should automate some of the core processes involved with CCAR to minimize the time, capital and resources they pour into manual compliance, according to Boyke Baboelal in his article, “CCAR Results: Taking the stress out of stress testing.”

Supporting his claim is a 2013 PwC Survey of banks, wherein 47% of respondents indicate they plan to invest materially in technology over the next three years to avoid modeling deficiencies and their associated costs and to free up time to work on other parts of the regulatory stress testing process that could use improvement.


Spreadsheets must be supplemented with more robust technology

PwC also predicts that, going forward, the sole reliance on uncontrolled, disparate Microsoft® Excel® spreadsheets will not be a sustainable approach to stress testing. They suspect the use of “spreadsheet spaghetti” — a system of dozens or hundreds of spreadsheets created over time with little or no governance mechanisms around them — will put data reconciliation and modeling processes at risk, especially as regulatory stress demands intensify.

The most efficient ways to pass a bank stress test

In his article, Baboelal also emphasizes that the most effective approach to CCAR reporting includes a robust data infrastructure and embedded data management processes.

Similarly, in their brief, “Stress testing: Midterm results improved, but it’s all about the final”, PwC analysts explain that sophisticated workflow tools can give senior management a transparent view of the end-to-end mapping of stress testing, risk identification and data processing within the institution.

The authors of the PwC briefing also recommend that institutions standardize processes around centrally managed data collection and reporting mechanisms and implement an enterprise-wide data strategy and governance structure that will ensure the accuracy and consistency of information.

Without automated, transparent, flexible, enterprise-wide processes, institutions face the risk of submitting inaccurate data to the Federal Reserve. Error-ridden reports and insufficient internal processes can have significant consequences.

The consequences of failing a stress test

For example, two major U.S. banks recently failed to meet CCAR’s requirements. One bank failed because they did not sufficiently improve parts of their capital plan that regulators had previously told them to pay attention to. As a result, the bank could not proceed with their capital plan and their shares fell by almost 5%.

Another high-profile bank miscalculated a crucial measure of its financial health. The mistake led the bank to report that it had billions more in capital than it actually did. Regulators responded by suspending the bank’s shared buyback and planned increase in its quarterly dividend. The bank’s stock also tumbled by 6.3%.

Would these banks be stronger today if they had taken a more robust and holistic approach to stress testing and passed the CCAR?


The manual governance and consolidation of data is insufficient when it comes to preparing accurate and timely reports for stress tests, such as CCAR.

Flexible, automated, enterprise-wide data frameworks protect the integrity and consistency of data, while transparency gives management insight into crucial indicators of an institution’s ability to survive times of economic and financial stress and a passing CCAR mark.

Click here to read the full article.

Recommended Posts