What a CCAR exercise is and why banks do it

A CCAR exercise is a stress test that the Federal Reserve runs on large banks to see whether they can survive a severe economic downturn. CCAR stands for Comprehensive Capital Analysis and Review. The Federal Reserve requires banks with more than $100 billion in assets to run these tests every year, and the results determine how much money the bank can return to shareholders through dividends and stock buybacks.

The exercise is not something that happens to your account directly. Instead, it is a behind-the-scenes process where the bank's risk team models what would happen to the bank's finances if unemployment spiked, stock markets crashed, or interest rates moved sharply. The bank has to prove it would still have enough capital to keep operating and lending even under those worst-case conditions.

For account holders, CCAR matters because it affects whether your bank stays stable and whether it can lend money during a crisis. A bank that fails the stress test faces restrictions on how much it can pay out to investors, which can signal financial weakness. But the test itself does not change how your checking account works or how much money you have on deposit.

Key Takeaways

  • CCAR is an annual stress test the Federal Reserve requires large banks to run to prove they can survive severe economic conditions.
  • The test uses hypothetical scenarios—such as unemployment rising to 10 percent or stock markets falling 50 percent—to model how much capital the bank would lose.
  • Banks submit detailed capital plans to the Federal Reserve showing how they would maintain lending and operations under stress.
  • A bank that fails CCAR cannot increase dividends or buy back stock until it passes, but account holders' deposits remain protected by FDIC insurance regardless of the test outcome.
  • The exercise happens once per year, usually with results announced in late June, and does not require any action from customers.

The scenarios the Federal Reserve uses in the test

The Federal Reserve designs three scenarios for each CCAR exercise: a baseline scenario, an adverse scenario, and a severely adverse scenario. The baseline assumes the economy continues roughly as it is. The adverse scenario models a mild recession with unemployment rising and asset prices falling moderately. The severely adverse scenario is the stress test that matters most—it assumes unemployment spikes to around 10 percent, stock markets drop 50 percent or more, and commercial real estate values fall sharply.

The Federal Reserve publishes the exact numbers for each scenario before banks begin their calculations. For example, in a recent severely adverse scenario, the Fed assumed unemployment would reach 10 percent, the S&P 500 would fall 55 percent, and house prices would drop 25 percent. Banks then use these numbers to model their loan losses, trading losses, and revenue declines across their entire portfolio.

The scenarios change slightly from year to year based on what economic risks the Federal Reserve thinks are most pressing. If the Fed is worried about commercial real estate defaults, the scenario might assume larger property value declines. If the Fed is concerned about rising interest rates, the scenario might model how that affects mortgage portfolios and deposit funding costs.

How banks calculate capital needs under stress

Each bank's risk team takes the Federal Reserve's scenario and runs it through the bank's own models. The bank estimates how many loans would default, how much trading losses would occur, and how much revenue would drop if the scenario actually happened. The goal is to calculate the bank's capital ratio—the amount of capital (shareholder equity) the bank has divided by its risk-weighted assets.

The Federal Reserve requires banks to maintain a minimum capital ratio even under the severely adverse scenario. Currently, that minimum is around 4.5 percent for the common equity tier 1 ratio, which is the strictest measure. If a bank's models show it would fall below that threshold under stress, the bank fails the test.

Banks also have to submit a capital plan to the Federal Reserve that shows how they would maintain lending, pay depositors, and keep operations running if the stress scenario occurred. The plan includes details about which business lines they would shrink, which costs they would cut, and how they would raise capital if needed. The Federal Reserve reviews the plan for realism—if the plan assumes the bank can cut costs by 50 percent overnight, the Fed will likely reject it as unrealistic.

What happens if a bank fails the CCAR test

If a bank fails CCAR, the Federal Reserve does not shut the bank down or seize it. Instead, the bank faces restrictions on what it can return to shareholders. The bank cannot increase its dividend payment to stock owners, and it cannot buy back its own stock. These restrictions stay in place until the bank passes the test in a future year.

A failed CCAR test is a public signal that the Federal Reserve has concerns about the bank's capital planning or its ability to survive stress. Stock investors typically react negatively to a failure, which can push the bank's stock price down. However, the failure does not affect deposit insurance, account access, or the bank's ability to take deposits and make loans.

Banks that fail CCAR usually resubmit a revised capital plan within a few months, and some pass on the second attempt. Others may need to raise additional capital by issuing new stock or retaining more earnings before they can pass. The Federal Reserve publishes the results of all CCAR tests in late June each year, so the outcomes are public information.

The timeline for CCAR each year

The CCAR cycle runs on a predictable schedule. In late October or early November, the Federal Reserve announces the scenarios for the upcoming year. Banks then have roughly four months to run their models and prepare their capital plans. Banks submit their completed plans to the Federal Reserve by late January or early February.

The Federal Reserve spends the next four months reviewing the plans, asking banks for clarifications, and running its own independent stress tests to verify the banks' numbers. In late June, the Federal Reserve announces which banks passed and which failed. Banks that pass are allowed to proceed with their planned dividend increases and stock buybacks. Banks that fail must revise their plans and resubmit.

For account holders, the only visible moment is late June when results are announced. If your bank fails, you may see news coverage, but your account balance and access do not change. The FDIC insurance that protects your deposits up to $250,000 per account type remains in effect regardless of the CCAR outcome.

Why the Federal Reserve requires CCAR and what it prevents

The Federal Reserve created CCAR after the 2008 financial crisis, when major banks ran out of capital and had to be rescued by the government. The test is designed to prevent that from happening again by forcing banks to plan for severe stress before a crisis occurs. By requiring banks to prove they can survive a 50 percent stock market crash or 10 percent unemployment, the Federal Reserve ensures that banks maintain enough capital to absorb losses and keep lending during downturns.

CCAR also forces banks to think about their capital plans honestly. Without the test, a bank might pay out all its earnings as dividends and have nothing left to absorb losses if the economy deteriorated. The test creates a discipline: banks have to balance returning money to shareholders with maintaining a safety cushion.

The test is not perfect—it cannot predict every type of crisis, and it relies on models that may not capture all risks. But it has made the banking system more resilient. Banks now hold significantly more capital than they did before 2008, which means they can absorb larger losses without failing.

How CCAR differs from other bank stress tests

The Federal Reserve also runs a separate stress test called the Dodd-Frank Act Stress Test, or DFAST. DFAST uses the same scenarios as CCAR but focuses on whether banks can maintain minimum capital ratios under stress, rather than on capital planning. DFAST results are also announced in late June, often on the same day as CCAR results.

Smaller banks—those with less than $100 billion in assets—are not required to run CCAR, though some do voluntarily. Instead, smaller banks may be subject to less intensive stress tests or regular capital reviews by their primary regulator. The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation each oversee different types of banks and may have different requirements.

International banks operating in the United States also have to pass CCAR if they have U.S. subsidiaries with more than $100 billion in assets. The test applies to the U.S. operations only, not the parent company's global operations.

Frequently Asked Questions

Does CCAR affect my deposits or account access?

No. CCAR is a test of the bank's capital planning, not a test of your account. Your deposits remain protected by FDIC insurance up to $250,000 per account type, and you can withdraw your money at any time. A bank that fails CCAR cannot increase dividends to shareholders, but it continues to operate normally and serve customers.

What if my bank fails CCAR—should I move my money?

A failed CCAR test does not mean your bank is in danger of failing. It means the Federal Reserve wants the bank to improve its capital planning or raise more capital. Many banks that fail CCAR one year pass the next year. Your deposits are insured by the FDIC regardless, so moving your money is not necessary for safety reasons.

Can I see my bank's CCAR results?

Yes. The Federal Reserve publishes the results of all CCAR tests on its website in late June each year. You can search for your bank by name and see whether it passed or failed, and you can read the Federal Reserve's summary of the bank's capital plan. The full capital plan itself is not public, but the results and the Fed's assessment are.

How often does CCAR happen?

CCAR happens once per year. The Federal Reserve announces scenarios in late October or November, banks submit plans in late January or February, and results are announced in late June. The cycle repeats every year for banks with more than $100 billion in assets.

What does it mean if a bank's capital ratio is low?

A low capital ratio means the bank has less shareholder equity relative to its risk-weighted assets. Under CCAR, the Federal Reserve requires banks to maintain a capital ratio of at least 4.5 percent even under the severely adverse scenario. If a bank's models show it would fall below that under stress, the bank fails the test and must raise more capital or revise its capital plan.