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FRM Part I · FRM Exam Part I · Stress Testing

Which statement best describes a key difference between a U.S. Dodd-Frank Act Stress Test (DFAST) and the Comprehensive Capital Analysis and Review (CCAR) as traditionally described in the FRM curriculum?

CCAR combines quantitative results with a qualitative assessment of the firm's capital planning and uses the firm's own planned capital actions. DFAST applies standardized, supervisor-prescribed capital action assumptions, which improves comparability. Both use multiple supervisory scenarios and apply to banks, not only insurers.

  1. ADFAST applies only to insurance companies, whereas CCAR applies only to banks
  2. BCCAR includes a qualitative review of a firm's capital planning process and the firm's own planned capital actions, whereas DFAST applies standardized, supervisor-specified capital action assumptionsCorrect
  3. CDFAST uses only baseline scenarios, whereas CCAR uses only adverse scenarios
  4. DCCAR is run solely by the firm without supervisory involvement, whereas DFAST is run solely by the supervisor

Explanation

CCAR evaluates the firm's capital planning process and its own planned capital actions such as dividends and buybacks. DFAST instead applies standardized capital action assumptions set by the supervisor, which makes results comparable across firms. Option C is wrong because both use baseline, adverse and severely adverse scenarios.

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