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FRM Part I · FRM Exam Part I · Stress Testing

Which statement best describes a key difference between the U.S. Federal Reserve's CCAR and DFAST exercises for large bank holding companies?

CCAR assesses both the quantitative capital outcome and the qualitative strength of a bank's capital planning, including proposed dividends and buybacks. DFAST is the quantitative stress test of projected losses and capital under prescribed supervisory scenarios. Both are U.S. exercises and both use supervisory scenarios.

  1. ACCAR includes a qualitative assessment of capital planning processes and the bank's proposed capital actions, whereas DFAST is a supervisory stress test focused on the quantitative impact on capital under prescribed scenariosCorrect
  2. BDFAST applies only to European banks while CCAR applies only to U.S. banks
  3. CCCAR uses only the banks' own internal scenarios with no supervisory scenarios, whereas DFAST uses only historical scenarios
  4. DDFAST requires banks to hold a fixed capital buffer regardless of results, whereas CCAR does not affect capital

Explanation

CCAR evaluates capital adequacy and the capital planning process, including planned dividends and buybacks, with a qualitative element. DFAST is the quantitative projection of losses, revenue and capital under prescribed scenarios. The other options misstate the geography, scenario types or capital consequences of the two exercises.

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