FINOMENAL 2016: DAY 1: “CCAR Stress Testing”-Bharat Gupta 2nd Vice President (Team Lead), Model Risk Management at Northern Trust Corporation


Mr. Bharat started interacting with the students by discussing the 2008 subprime crisis and how it affected the banking industry. He explained the entire phenomenon unfolded by taking examples of certain important banks involved. How the investors, banks, investment banks and the insurance companies in the US were involved in the crisis, which ultimately led to the collapse of the entire financial system.

Comprehensive Capital Analysis & Review (CCAR) is one such supervisory exercise that is being run by the Federal Reserve since 2010 after the sub-prime crisis as a stress test for American banks, in order to keep a check so that they maintain sufficient capital for liquidity. This was because the regulator felt that the banks had inadequate levels of capital planning and the estimation of Risk-Weighted Assets wasn’t proper. CCAR uses sophisticated financial models, which are linked to Macroeconomics to identify the losses that the loans of a bank can make and whether it has sufficient capital to take care of its liabilities in that situation. He also discussed the various banks in the US that have been a part of this CCAR exercise and how the system is becoming less risky because of it. He further explained, how models like the Pre-Provisioning Net Revenue (PPNR) are built by banks using macroeconomics in order to maintain capital under the CCAR regulation.
In the end, he spoke about the various opportunities that the area of CCAR holds for the students of management in the industry.


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