Too Big to Fail – The Necessity of CCAR

The concept of an organisation being ‘too big to fail’ rose to prevalence during the financial crisis of 2007/8, when the US government was forced to bail out several large financial institutions. The government was essentially left with two options: i) to provide assistance; or ii) let them collapse.

In the late 2000s the US government disbursed $700 billion to save companies on the verge of financial failure. Capital adequacy measures had not been sufficient and change was required to ensure that failure on the magnitude of 2007/8 could not happen in the future.

The Federal Reserve went on to establish frameworks and programmes for the supervision of the largest financial institutions, incorporating the lessons learned from the financial crisis. The Comprehensive Capital Analysis and Review (CCAR) Report is one of the key measures implemented to directly tackle the critical issue of capital adequacy.

CCAR is an annual exercise carried out by the Federal Reserve to assess whether the largest bank holding companies (BHCs) operating in the US (those with $50 billion or more in assets) have sufficient capital to continue operating throughout times of economic and financial stress, supported by forward-looking capital-planning processes.

The Federal Reserve stress test the data supplied by the BHCs to determine how well an organisation would perform under certain levels of duress. This stress testing ensures large institutions can withstand adverse economic conditions, whilst continuing to provide consistent service.

Banks regularly conducted capital adequacy assessment and planning previously. However, the recent financial crisis highlighted the evident deficiencies in these processes, as well as the opaqueness of risk in the balance sheet.

US firms have substantially increased their capital since the first round of stress tests led by the Federal Reserve in 2009. The diagram below shows that the common equity capital ratio of the 34 BHCs in the 2017 CCAR has more than doubled from 5.5 percent in the first quarter of 2009 to 12.5 percent in the first quarter of 2017. This reflects an increase of more than $750 billion in common equity capital to a total of $1.25 trillion during the same period.

CCAR has led to a significant increase in the common equity capital being held by BHCs that many would deem to be ‘too big to fail’. This equity would help mitigate any potential future downturn in the economy.

Overall, the 34 BHCs involved in CCAR hold more than 75 percent of the total assets of all US financial companies. Through controls such as CCAR, the quantity and quality of capital held by these firms has improved, increasing the resilience of the banking sector and strengthening the financial system more broadly.

The financial crisis revealed that sudden actual or expected erosions of capital can lead to loss of investor confidence in the financial strength of a financial institution, which may not only imperil that institution’s viability but also harm the broader financial system.

CCAR is therefore necessary when it comes to institutions that are thought to be ‘too big to fail’. Not only does it ensure that institutions have sufficient capital to operate effectively during an economic downturn, it also reassures investors that the organisation has sufficient capital to operate as usual. If investors perceive that an institution is failing, then that perception may become a reality.

CCAR has quickly become one of the most dominant regulatory regimes for US banks in recent years. Of the new regulatory requirements BHCs must address, CCAR is widely considered to have the greatest influence on the risk management and business practices of banks.

Today, CCAR and its associated stress testing profoundly impacts BHCs in the US. Since inception in late 2010, these BHCs have invested significant resources in the systems, processes and governance required to meet the challenging reporting requirements.

FinTrU provides consultation and resourcing to aid a Tier 1 investment bank in the completion of the CCAR report.  FinTrU act as an independent feedback loop in the reporting process and offer Quality Assurance. Verification of data for complex reports such as CCAR highlights FinTrU’s ability to provide a consistently high level of outsourcing work. The accuracy of the data submitted to the Federal Reserve has a direct impact on the current and future health of the economy, ensuring that those ‘too big to fail’, don’t.


Dodd-Frank at Five: Assessing Progress on Too Big to Fail – Board of Governors of the Federal Reserve System

CCAR and Beyond: Capital Assessment, Stress Testing and Applications – Moody’s Analytics

Comprehensive Capital Analysis and Review 2017: Assessment Framework and Results June 2017 - Board of Governors of the Federal Reserve System

The 2007-09 Financial Crisis: Learning the Risk Management Lessons - Dr Simon Ashby

Capital Buffers and the Future of Bank Stress Tests - Jill Cetina, Bert Loudis, and Charles Taylor

Ciaran Mullen

Ciaran is a graduate of Queen’s University Belfast, where he gained a BSc in Accounting. He joined FinTrU in 2015 as part of our second Financial Services Academy. Since coming on-board, he has worked as part of the Securitised Products Group of a Tier 1 Investment Bank.


The 2-year Graduate Programme run by FinTrU has provided Ciaran with a clear path to progressing his career in financial services. This is structured around on-the-job training, coupled with direct client exposure and the opportunity to gain professionally accredited qualifications.


Specialising in the reporting requirements surrounding Commercial Real Estate loans and loan-on-loan lending, one of Ciaran’s key roles along with Asset Management is the compilation of quarterly reports to the Federal Reserve and the bank’s global Credit department. Ciaran also independently verifies critical reporting packs, ensuring compliance with the contractual obligations of the counterparties involved in the deals he works on.