FRM Exam Part II · Stress Testing Banks

Regulatory Stress Tests: CCAR, DFAST and EBA Explained

Updated 11 October 2026 · Fact-checked

Regulatory stress tests project a bank's losses, revenue and capital under a severe scenario. DFAST measures post-stress capital ratios. CCAR adds a review of capital planning. In the US, the stress capital buffer comes from the Fed's projected peak-to-trough fall in CET1 ratio. The EU-wide EBA test has a common methodology and no pass mark.

Understand Regulatory Stress Tests: CCAR, DFAST and EBA

A supervisory stress test asks one question: if a severe but plausible shock hit, would the bank still hold enough capital to keep lending? The supervisor sets the scenario, the bank or the supervisor projects losses and revenue, and the result is a post-stress capital ratio compared with minimums.

In the US, two programs run side by side. DFAST (Dodd-Frank Act Stress Test) is the quantitative test. It projects capital ratios over nine quarters under supervisory scenarios using common, supervisor-set assumptions. CCAR (Comprehensive Capital Analysis and Review) is broader. It adds a view on whether the bank's own capital planning process is sound, including how it identifies risks, governs models and decides on dividends and buybacks. Think of DFAST as the numbers and CCAR as the numbers plus the process and the payout decision. Note that in 2019 the Fed removed the qualitative objection to capital plans for large and noncomplex firms. The largest, most complex firms (the LISCC firms) remain subject to a qualitative assessment of their capital planning. From the 2020 cycle, the SCB replaced the quantitative CCAR objection, so the numbers now drive the payout constraint for banks subject to it.

Results feed capital rules. In the US, the stress capital buffer (SCB) replaced the old pass/fail view of planned distributions. The SCB is calculated from the Fed's own supervisory model projections, not the bank's own projections. It is based on the decline in the CET1 ratio from its actual level at the start of the projection horizon to its minimum over the nine quarters under the severely adverse scenario, plus planned common dividends for quarters 4 through 7 of the planning horizon (four quarters) as a share of risk-weighted assets. It has a floor of 2.5%. A bank that falls into its buffer faces automatic limits on distributions.

The EBA stress test is different in design. It is EU-wide, run by the European Banking Authority with the ECB and national authorities. Banks run the projections with a common methodology and constraints, and the supervisor challenges them. It has no pass/fail hurdle rate and no automatic buffer. Results inform the supervisory review process (SREP) and Pillar 2 guidance, and can also inform Pillar 2 requirements.

The exam tests whether you can tell these programs apart, read a CET1 path, and see how results change buffers and distributions.

Key formulas to remember

Stress CET1 depletion: Depletion = Actual starting CET1 ratio (start of projection horizon) − Minimum CET1 ratio over the nine quarters of the severely adverse scenario; Peak-to-trough decline, not start to end of the horizon.
Stress capital buffer (US): SCB = Depletion + (Planned common dividends for quarters 4 through 7 of the planning horizon ÷ RWA), subject to a floor of 2.5%; The dividend add-on uses planned common stock dividends for the fourth through seventh quarters of the planning horizon (four quarters), as a percentage of RWA.
Post-stress requirement: For a firm subject to the SCB: Minimum CET1 requirement = 4.5% + SCB (+ G-SIB surcharge where applicable); For firms subject to the SCB, it replaces the fixed 2.5% capital conservation buffer. Firms not subject to the SCB keep the 2.5% buffer. The G-SIB surcharge is additive, on top of the SCB.
Projected capital path: Ending CET1 capital = Starting CET1 capital + Pre-provision net revenue − Provisions − Other losses − Distributions; RWA is also projected; the ratio is capital ÷ RWA each quarter.
Program horizon: DFAST/CCAR: nine-quarter projection horizon; Scenarios: baseline, adverse and severely adverse (set by the Federal Reserve).

How to solve Regulatory Stress Tests: CCAR, DFAST and EBA questions

Use this order for any regulatory stress test question.

1Identify the program: DFAST, CCAR, SCB or EBA, and who runs the projections.
2Find the starting CET1 ratio and the lowest point of the projected path.
3Compute the depletion as start minus minimum, not start minus end.
4If asked for the SCB, add planned dividends as a percentage of RWA and apply the 2.5% floor.
5Add the SCB to the 4.5% CET1 minimum (and any G-SIB surcharge) to get the requirement.
6Compare the actual ratio to the requirement; if it falls inside the buffer, distributions are restricted.
7Check the wording on qualitative versus quantitative aspects and on pass/fail before choosing.

Quickest way: Depletion plus dividends, then floor

When to use it: Numerical SCB questions with a CET1 path given.

Read start and lowest CET1 ratio; subtract.
Add dividends ÷ RWA in percent.
If the total is under 2.5%, use 2.5%.
Add 4.5% for the CET1 requirement.
Match the answer to the single option that fits.

Common mistakes in Regulatory Stress Tests: CCAR, DFAST and EBA

Using the end-of-horizon CET1 ratio instead of the minimum.
Candidates assume the last quarter is the worst.
Fix: Scan every quarter and use the trough.
Saying DFAST and CCAR are the same test.
They run on the same scenarios and timetable.
Fix: DFAST is quantitative; CCAR also assesses capital planning and the distribution plan. Today CCAR's qualitative assessment applies mainly to the largest, most complex (LISCC) firms.
Forgetting the 2.5% floor on the SCB.
The calculation looks complete after adding dividends.
Fix: Always compare the result with 2.5% and take the higher.
Treating the EBA test as pass/fail with an automatic buffer.
It is confused with the US SCB.
Fix: The EBA exercise has no pass mark; results feed the supervisory review and Pillar 2 guidance.
Dividing dividends by capital rather than by RWA.
The word ratio is read loosely.
Fix: The dividend add-on is expressed as a percentage of risk-weighted assets.

Worked examples

Example 1

A bank starts with an actual CET1 ratio of 12.0% at the beginning of the projection horizon. Under the severely adverse scenario the ratio falls to a minimum of 8.4% in quarter 6 and ends at 8.9% in quarter 9. RWA is $500 billion and planned common dividends for quarters 4 through 7 of the planning horizon (four quarters) are $5 billion. What is the stress capital buffer?

Show the solution

Depletion = start − minimum = 12.0% − 8.4% = 3.6%.
Dividend add-on = 5 ÷ 500 = 1.0%.
SCB = 3.6% + 1.0% = 4.6%.
4.6% is above the 2.5% floor, so it stands.

Answer: SCB = 4.6%

Example 2

A bank has a CET1 depletion of 0.8% and planned dividends equal to 0.6% of RWA. It has no G-SIB surcharge. What CET1 requirement applies, and what is the SCB?

Show the solution

Calculated SCB = 0.8% + 0.6% = 1.4%.
1.4% is below the 2.5% floor, so SCB = 2.5%.
Requirement = 4.5% + 2.5% = 7.0%.

Answer: SCB = 2.5%; CET1 requirement = 7.0%

Exam tips

Expect questions that ask you to distinguish DFAST, CCAR and EBA by who runs the model, what is assessed and what happens to the result.
Watch for trough versus ending ratio in the CET1 path; the wrong one is usually an answer option.
Remember the floor of 2.5% and the nine-quarter horizon.
For qualitative questions, tie CCAR to capital planning governance, model risk and controls, but remember the qualitative assessment now applies mainly to the largest, most complex (LISCC) firms.
State the consequence: dipping into the buffer limits dividends and bonuses, it does not mean a breach of the minimum.

Practice questions from Stress Testing Banks

Regulatory Stress Tests: CCAR, DFAST and EBA in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

FRM Part IRegulatory Stress Testing (CCAR, DFAST, EBA)

Regulatory Stress Tests: CCAR, DFAST and EBA: frequently asked questions

What is the difference between CCAR and DFAST?

DFAST is the quantitative stress test that projects post-stress capital ratios under supervisory scenarios. CCAR also reviews the bank's capital planning process and its planned distributions. In 2019 the Fed removed the qualitative objection for large and noncomplex firms, while LISCC firms remain subject to a qualitative assessment of their capital planning. The SCB replaced the quantitative CCAR objection from the 2020 cycle. Both use the same scenarios and a nine-quarter horizon.

How does the stress capital buffer work?

It equals the peak-to-trough fall in CET1 ratio under the severely adverse scenario, from the actual ratio at the start of the projection horizon to the minimum over nine quarters, using the Fed's own supervisory projections. To this it adds planned common dividends for quarters 4 through 7 of the planning horizon (four quarters) as a share of RWA, with a floor of 2.5%. For firms subject to it, it is added to the 4.5% CET1 minimum in place of the 2.5% capital conservation buffer, and any G-SIB surcharge sits on top. If a bank's CET1 falls inside the buffer, automatic limits apply to its distributions.

How is the EBA stress test different?

It is EU-wide and uses a common methodology that banks apply to their own data, with supervisors challenging the results. There is no pass/fail hurdle rate and no automatic buffer. The results inform the supervisory review process (SREP) and Pillar 2 guidance, and can also inform Pillar 2 requirements.

Do stress tests change a bank's minimum capital?

They change the buffers above the minimum, not the 4.5% CET1 minimum itself. In the US the SCB is reset from each test. In the EU the effect comes through supervisory judgment.