Successfully Navigating CCAR and DFAST

Abstract

Large bank holding companies as well as smaller institutions are annually required to undergo the Federal Reserve Board’s Dodd–Frank Act stress testing (DFAST) and Comprehensive Capital Analysis and Review (CCAR) exercises. Navigating the requirements of stress-testing is indeed a challenge, but it is one that is entirely surmountable, as long as the institution follows key best practices and effectively uses quantitative analytics to very precisely model risk. This article details industry observations to provide a measure of guidance in identifying those best practices, while also highlighting specifics to be considered within any predictive modeling and/or datasets the institution may deploy as part of its stress-test regimen.