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FRM Part II · FRM Exam Part II · Stress Testing Banks

A risk manager at a large US bank holding company is explaining the difference between the two Federal Reserve stress testing programs. Which statement best describes a key feature of the Dodd-Frank Act Stress Test (DFAST) as distinct from the Comprehensive Capital Analysis and Review (CCAR)?

DFAST uses standardized, prescribed capital action assumptions to project post-stress capital ratios and allow comparison across banks, while CCAR assesses capital adequacy using the bank's own planned capital actions such as dividends and share repurchases.

  1. ADFAST applies standardized, prescribed capital action assumptions to project post-stress capital ratios, whereas CCAR uses the bank's own planned capital actionsCorrect
  2. BDFAST allows each bank to design its own scenarios, while CCAR uses only supervisory scenarios
  3. CDFAST is a purely qualitative review of governance, with no quantitative capital projections
  4. DDFAST covers only market risk losses in the trading book, while CCAR covers credit losses

Explanation

DFAST projects capital under standardized capital action assumptions so results are comparable across banks, while CCAR evaluates capital adequacy using the bank's own planned dividends and buybacks. The other options misstate scenario design, scope or the quantitative nature of DFAST.

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