Financial institutions subject to CCAR evaluations and DFAST stress testing understand the high importance and visibility of these supervisory programs. These programs demand strong processes for assessing capital needs supported by effective firm wide practices to identify, measure, and manage material risks; strong internal controls; and effective oversight by boards of directors and senior management. Capital plans are now reviewed, including both a qualitative assessment of the strength of the internal capital planning process and a quantitative assessment of capital adequacy. There is also the expectation that each year stress testing will improve.

SRA’s Risk Management & Governance Practice and Internal Audit Services Team have developed a comprehensive suite of services supporting successful CCAR evaluations and effective DFAST stress testing. Aligned with Federal Reserve and Interagency Guidance, the characteristics and focus of each service are outlined below:

Capital Planning Process/Internal Audit

  • Appropriate governance and oversight exists
  • Internal practices used to determine the amount and composition of capital are appropriate and well documented
  • Effective controls are in place to ensure material risks are included and data integrity maintained
  • The impact on Regulatory Capital levels and Capital Ratios is effectively stated

Development of Governance Framework

  • Incorporates industry best practices
  • Aligned with the expectations of the regulatory community
  • Documented policies and procedures exist for all aspects of the program
  • Effective challenge performed by management and the Board of Directors
  • Independent validation of data

Model Risk Management

  • Development of loan stress test models
  • Documented policies & procedures
  • Framework for model development, implementation and use
  • Assignment of roles & responsibilities
  • Maintenance of Model Inventory
  • Model risk assessments

Model Validation

  • Consistency in the performance of model validation activities
  • Validation schedule based upon risk-based tier assignments
  • Assignment of roles & responsibilities
  • Models are validated by independent parties
  • Independent review and approval of validation results

Process Analysis & Key Control Identification

  • Development of capital planning and stress testing process flow documentation
  • Development of control inventory for key controls that support all facets of the stress testing program
  • Identification of appropriate reconciliation, verification and Q/C processes
  • Appropriate controls exist for data integrity