North American FI Chart of the Month (2018 CCAR Results Create Uncertainties)

...CCAR Results Not Binding in 2018: This year's annual stress testing results produced unexpected outcomes, with GS, MS and STT receiving conditional non-objections despite breaching regulatory minimum capital ratios under CCAR. While these companies have agreed to limit their capital distributions to levels they paid in recent years, these exceptions may reflect the severity of this year's stress test and the potential change to the stress capital buffer (SCB) under CCAR. Tax Reform Partially to Blame: The Fed noted the Tax Cuts and Jobs Act, among other factors, affected these firms negatively and all banks' capital ratios by an average negative 30bps. The Fed stated the lower corporate tax rate generally resulted in better performance for banks with positive pre-tax net income over the stress period; conversely, the lower tax rate resulted in lower capital ratios for banks with pre-tax losses, which included 26 banks. SCB Proposal Creates Uncertainty: If the recent notice for proposed...

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