What is the CCAR framework and how does it differ from DFAST in terms of scope and purpose?

Question

AcadiFi · Accepted Answer

The Comprehensive Capital Analysis and Review (CCAR) and the Dodd-Frank Act Stress Tests (DFAST) are complementary but distinct supervisory programs run by the Federal Reserve for large U.S. bank holding companies.

**CCAR** evaluates both the adequacy of a firm's capital and the robustness of its capital planning process. It has two pillars:

- **Quantitative**: projecting capital ratios under the Fed's severely adverse scenario over a nine-quarter horizon
- **Qualitative**: assessing the firm's internal governance, risk identification capabilities, model infrastructure, and board oversight of capital decisions

**DFAST** is purely quantitative. It requires institutions to project revenues, losses, and capital ratios under three scenarios (baseline, adverse, severely adverse) using the Fed's prescribed macroeconomic variables.

| Feature | CCAR | DFAST |
|---------|------|-------|
| Focus | Capital planning process + adequacy | Capital ratio projections |
| Qualitative review | Yes — governance, controls, models | No |
| Capital distribution | Can object to dividends/buybacks | Does not restrict distributions |
| Applicability | BHCs with $100B+ assets | BHCs with $250B+ assets (post-2019 tailoring) |
| Frequency | Annual | Annual |
| Public disclosure | Firm-level results | Aggregate and firm-level |

At Caldwell National Bancorp ($145B assets), CCAR feedback revealed that while their projected capital ratios remained above minimums, the Fed objected to their capital plan because the board had not documented its rationale for approving a $2.1B share repurchase program — a qualitative deficiency that forced them to reduce distributions by 30%.

For the FRM exam, the critical distinction is that CCAR can result in a capital plan objection even when quantitative results pass, while DFAST only measures numerical adequacy.

What is the CCAR framework and how does it differ from DFAST in terms of scope and purpose?

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