The FRB's DFAST stress test models are expressly designed to simulate the performance of "an average bank.
Similar to the FRB's practice for calibrating its DFAST models, I estimate stress test models for an "average" or representative bank.
In light of these deficiencies, this Note suggests adjusting the threshold criteria that subject a financial institution to DFAST
and stratifying midsize financial companies into tiers that correspond to each company's risk profile to determine how frequently a company will undergo stress testing.
Another good prospect for simplification would be the elimination of DFAST
Bank of America performed relatively well in last week's DFAST
but received a conditional non-objection based on weaknesses in loss and revenue modeling practices and aspects of the company's internal controls.
Both the DFAST
and CCAR results reveal continued improvement in the collective capital position and ability of the 18 largest U.
First Republic is required to disclose the results of the severely adverse scenario of the DFAST
annually beginning with the 2015 annual capital stress test.
Conducted by the Federal Reserve and major financial companies supervised by the Federal Reserve, DFAST
helps assess whether institutions have sufficient capital to absorb losses and support operations during adverse economic and financial market conditions over a period of nine quarters.
Zions said that, based upon an initial review of the Federal Reserve's publication, Zions' DFAST
results were worse than Zions had projected primarily because of significantly higher commercial real estate losses, significantly greater risk-weighted assets, and lower pre-tax, pre-provision net revenue.