CCAR and Capital Management: Relationship with Economic Capital, Regulatory Capital and ICAAP

Dan Ryan and Pranjal Shukla

In the post-financial crisis world, capital planning and capital management have taken an ever-increasing prominence, not only from the regulators’ point of view but also internally as large banks in the US have dedicated more resources and attention to capital adequacy. The Federal Reserve’s Capital Plan Rule¹¹76 Federal Register 74631–48. and the Comprehensive Capital Analysis and Review (CCAR, the Federal Reserve’s supervisory programme for assessing large banks’ capital plans and capital adequacy processes) have emerged as the most important capital assessment programmes being implemented and continuously enhanced.

While the focus has been on CCAR, other similar capital management initiatives of varying degrees of maturity have already been implemented at large banks. Examples include regulatory capital and Basel-driven initiatives (including Basel I, II, II.5 and III) and banks’ internal views of risk-based capital requirements primarily driven by economic capital programmes. As banks continue to enhance and evolve these programmes, it is important to understand the context, objectives and applications of each, as well as the relationships among them and how they can be