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Fed stress testing has strengthened banks' capital and risk management 

June 23, 2016

Moody's

The US Federal Reserve's annual, two-part bank stress tests have spurred the largest US bank holding companies to increase capital cushions and strengthen internal risk management, said Moody's Investors Service. The Fed will release results of the Dodd-Frank Act stress test (DFAST) on 23 June and the Comprehensive Capital Analysis and Review (CCAR) on 29 June.

In a new report, Moody's addressed investor questions on the impact of the Fed's annual stress test exercise in anticipation of the upcoming 2016 results. On June 23, the Fed will release results of the Dodd-Frank Act stress test (DFAST), which considers how well banks could withstand an adverse economic scenario. On 29 June, it will release the results of the Comprehensive Capital Analysis and Review (CCAR), which evaluates the banks' capital plans, including dividends and stock repurchases, in light of their regulatory capital and evaluates the banks' capital planning process. This year, 33 companies will undergo the test.

Moody's said it believes CCAR now provides the effective minimum capital for US banks, noting banks' higher capital buffers and more moderate dividend payouts relative to pre-crisis levels are a direct result of the heightened regulatory supervision. Read more

 
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