C C A R EY Regula tory Alert

Similar documents
OH BOY! Story. N a r r a t iv e a n d o bj e c t s th ea t e r Fo r a l l a g e s, fr o m th e a ge of 9

A L A BA M A L A W R E V IE W

Agenda Rationale for ETG S eek ing I d eas ETG fram ew ork and res u lts 2

Banking Agenda: Rising pressure

MACRO-PRUDENTIAL RULES AND REGULATION (2015): DISCLOSURE REQUIREMENTS ANNEXURE I: FORMAT FOR ANNUAL DISCLOSURES DRUK PNB BANK LTD.

Composition of capital as of 30 September 2011 (CRD3 rules)

Composition of capital as of 30 September 2011 (CRD3 rules)

Composition of capital as of 30 September 2011 (CRD3 rules)

Composition of capital as of 30 September 2011 (CRD3 rules)

Composition of capital as of 30 September 2011 (CRD3 rules)

Composition of capital as of 30 September 2011 (CRD3 rules)

DELAWARE COMPENSATION RATING BUREAU, INC. Internal Rate Of Return Model

PENNSYLVANIA COMPENSATION RATING BUREAU F CLASS FILING INTERNAL RATE OF RETURN MODEL

AMUNDI-ACBA ASSET MANAGEMENT CJSC Balanced Pension Fund ANNUAL FINANCIAL STATEMENTS DECEMBER 31, 2015

Composition of capital DE017 DE017 POWSZECHNADE017 DEUTSCHE BANK AG

Composition of capital ES059

Composition of capital DE025

Composition of capital ES060 ES060 POWSZECHNAES060 BANCO BILBAO VIZCAYA ARGENTARIA S.A. (BBVA)

Composition of capital CY007 CY007 POWSZECHNACY007 BANK OF CYPRUS PUBLIC CO LTD

Composition of capital FR013

Composition of capital NO051

Composition of capital DE028 DE028 POWSZECHNADE028 DekaBank Deutsche Girozentrale, Frankfurt

Composition of capital FR015

Composition of capital CY006 CY006 POWSZECHNACY006 CYPRUS POPULAR BANK PUBLIC CO LTD

Composition of capital LU045 LU045 POWSZECHNALU045 BANQUE ET CAISSE D'EPARGNE DE L'ETAT

T h e C S E T I P r o j e c t

Convergence with International Financial Reporting Standards: The Experience of Taiwan

NASDAQ OMX Copenhagen A/S. 3 October Jyske Bank meets 9% Core Tier 1 ratio in EU capital exercise

Tariff Decision (BPSA) OR Tambo International Airport (ORTIA) Period covered by tariff application: 01 January December 2015.

Banks. Crown Agents Bank Limited. United Kingdom. Update. Key Rating Drivers. Rating Sensitivities. Ratings

acuitas, inc. s survey of fair value audit deficiencies April 2012 audit deficiency trends pcaob inspections methodology description of a deficiency

This introduction is intended for compliance officers at Protection Seller and Broker-Advisor firms

Allianz Thailand Equity

European Lignite Mines Benchmarking. Sanitized Report

Sensitivity to Market Risk Consolidated Examples

Information Bulletin 2/2011

Villa Monterey Improvement Association 2018 Annual Audit Scottsdale, Arizona

Identifying Aggregate Liquidity Shocks with Monetary Policy Shocks: An Application using UK Data

Information Bulletin 11/2010

Information Bulletin 12/2008

Warwick Business School Forecasting System. Summary. Ana Galvao, Anthony Garratt and James Mitchell November, 2014

The Central Bank of Iceland forecasting record

Sample Institution Memphis, TN

Information Bulletin 1/2008

Information Bulletin 11/2011

Statement of indicative wholesale water charges and charges scheme

Information Bulletin 9/2011

Information Bulletin 4/2007

Gen ova/ Pavi a/ Ro ma Ti m i ng Count er st at Sep t. 2004

Name of Bank BASEL III LEVERAGE RATIO REPORT As of 30 Sep 2018

Topic 4 Forecasting Exchange Rate

2016 WESTERN NORTH PACIFIC BASIN TROPICAL CYCLONE PREDICTIONS

Information Bulletin 9/2007

Political Cycles and Stock Returns. Pietro Veronesi

U.S. Consumer Products And Retail/Restaurants Sector: Historical Performance And Current Risks

Information Bulletin 4/2008

Product Overview EXPLORE. Scholars Choice 529 plan INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

Florida Alliance for Assistive Services and Tec

Information Bulletin 5/2010

CITY OF MESQUITE Quarterly Investment Report Overview Quarter Ending June 30, 2018

P a g e 5 1 of R e p o r t P B 4 / 0 9

Th e E u r o p e a n M ig r a t io n N e t w o r k ( E M N )

Financial Factors in Economic Fluctuations. Lawrence Christiano Roberto Motto Massimo Rostagno

STRATEGY FOR SPATIAL PLANNING AND RENEWAL OF URBAN POLICY: THE SOFA OF CENTRAL METROPOLITAN AREA

Information Bulletin 7/2007

Disclosures - IFFCO TOKIO General Insurance Co. Ltd. for the period 1st April, st December, 2018 S.No. Form No Description

PARTICIPATING ORGANISATIONS CIRCULAR

Information Bulletin 6/2008

Information Bulletin 5/2007

Difference in regional productivity and unbalance in regional growth

PeopleSoft Enterprise Funds Transfer Pricing 9.1 Reports

J.S. Vaughan Professional Business Support Services 3251 Prices Fork Blvd. Apt. 108 Suffolk VA

Mainor Ülemiste AS. Interim Report July September

Financial Review. No member of the Board of Directors has reported accepting any gifts or incentive from any vendor contracted by the association.

STATEMENT ON EBA CAPITAL EXERCISE

Lakeland Court MHP Norton Rd Lakeland, FL 33809

Sunshine City 47-Sp MHP

Internal Audit Report

Emefcy Group Limited (ASX : EMC) ASX Appendix 4D Half Year Report and Interim Financial Statements for the six months ended 30 June 2016

Investors presentation Oddo BHF Forum - January 2019

Source: US. Bureau of Economic Analysis Shaded areas indicate US recessions research.stlouisfed.org

Demand Forecasting Reporting Period: 19 st Jun th Sep 2017

Information Bulletin 8/2009

Information Bulletin 10/2008

Frankfield Gold Project Corporate Presentation

Estimating and Accounting for the Output Gap with Large Bayesian Vector Autoregressions

Table 01A. End of Period End of Period End of Period Period Average Period Average Period Average

FLEXIBILITY IN ADVERSITY KEY TO SUCCESSFULLY

Pancake Model vs Willow Corporate Presentation March 2018

ESRI Research Note Nowcasting and the Need for Timely Estimates of Movements in Irish Output

Outlook for Major Segments of the International Offshore Industry Geology and Geophysical

CITY OF MESQUITE Quarterly Investment Report Overview Quarter Ending September 30, 2018

At the Midpoint of the 2008

Pursuant to Section 205 of the Federal Power Act ( FPA ) 1 and the Commission s

F L I G H T R I S K I N M & A : T H E A R T A N D S C I E N C E O F R E T A I N I N G T A L E N T

Allianz Risk Transfer. Weather Solutions

Rebate Report. $15,990,000 Public Finance Authority Charter School Revenue Bonds (Voyager Foundation, Inc. Project) Series 2012A

ERNST TORNER, CHARTERED ACCOUNTANT

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 8-K

The World Bank Haiti Business Development and Investment Project (P123974)

Transcription:

C C A R 2 0 1 6 EY Regula tory Alert F eb r u ar y 2016 O n T h u r sday, J an u ar y 28, 2016, t h e F eder al R eser ve B o ar d ( F R B ) p u b l i sh ed t h e C o m p r eh en si ve C ap i t al A n al y si s an d R evi ew ( C C A R ) 2016 i n st r u c t i o n s an d t h e su p er vi so r y sc en ar i o s f o r t h e an n u al st r ess t est s r eq u i r ed u n der t h e D o dd-f r an k A c t st r ess t est ( D F A S T ) r u l es an d t h e c ap i t al p l an r u l e 1 t h at ap p l y t o t h e 33 b an k h o l di n g c o m p an i es ( B H C s) p ar t i c i p at i n g i n C C A R t h i s y ear. 2 While there are no significant surprises in the instructions, some new features in the CCAR 2016 scenarios warrant particular attention. Specifically, the supervisory severely adverse scenario introduces a period of negative short-term interest rates. T e c h n i c a l i n s t r u c t i o n s r e i n f o r c e t h e n o w - e x p l i c i t a n d d i f f e r e n t i a t e d e x p e c t a t i o n s o f S R 1 5-1 8 a n d S R 1 5-1 9 T h e C C A R 2016 i n st r u c t i o n s ar e g en er al l y c o n si st en t w i t h l ast y ear s C C A R ex er c i se. H o w ever, t h ey c o n t ai n addi t i o n al det ai l s o n h o w B H C s sh o u l d i m p l em en t t ec h n i c al am en dm en t s t o st r ess t est an d c ap i t al r u l es an d r ei t er at e c h an g es f r o m u p dat ed g u i dan c e p u b l i sh ed si n c e C C A R 2015, i n c l u di n g : November 25, 2015 amendments to the capital plan and stress testing rules December 21, 2015 supervisory letters SR 15-18 and SR 15-19 3 January 21, 2016 updates to the FR Y-14A/Q/M Instructions W h i l e t h e sc en ar i o s m ay i m p ac t t h e ab i l i t y f o r B H C s t o m eet q u an t i t at i ve r eq u i r em en t s under CCAR, SR 15-18 and SR 15-19 reinforce the high supervisory expectations that form t h e b asi s o f t h e F R B s q u al i t at i ve C C A R assessm en t. 1 http://www.federalreserve.gov/newsevents/press/bcreg/20160128a.htm 2 A p p l i c ab i l i t y : 31 C C A R B H C s f r o m l ast y ear p l u s t w o n ew p ar t i c i p an t s: B an c W est C o r p o r at i o n an d T D G r o u p U S Holdings LLC. The same 6 US global systemically important banks (G-SIBs) as last year are subject to the FRB s Global Market Shock (GMS), and the same 8 G-SIBs as last year are subject to the FRB s Counterparty Default S c en ar i o c o m p o n en t. 3 The new guidance supersedes SR 09-4 and SR 99-18 and provides core expectations for capital planning, w h i c h b u i l ds u p o n ex i st i n g m i n i m u m ex p ec t at i o n s p u b l i sh ed i n o t h er r eg u l at o r y g u i dan c e ( i.e., C C A R R an g e o f Current Practices (2013), Comprehensive Capital Analysis and Review 2015 Summary Instructions and Guidance, Instructions for the Capital Assessments and Stress Testing information collection, SR 11-7, SR letter 12-17/CA, an d S R 13-1).

K ey i ssu es h i g h l i g h t ed i n t h e C C A R 2016 i n st r u c t i o n s t h at w er e p r evi o u sl y c o m m u n i c at ed i n c l u de: R e i t e r a t e d c h a n g e s f r o m N o v e m b e r 2 5, 2 0 1 5 F i n a l R u l e a m e n d i n g t h e c a p i t a l p l a n a n d s t r e s s t e s t i n g r u l e s Removal of tier 1 common ratio, indefinite delay of stressed advan c ed ap p r o ac h es r i sk -w ei g h t ed asset c al c u l at i o n s, an d o n e- y ear del ay f o r i n c o r p o r at i n g su p p l em en t ar y l ever ag e r at i o i n t o stress projections Modification of DFAST capital action assumptions to highlight t h e i n c o r p o r at i o n o f p l an n ed m er g er s an d ac q u i si t i o n s i n c ap i t al projections Requirement to include Volcker Rule deductions from regulatory capital in FR Y-14A schedules, as appropriate, over the nine-quarter p l an n i n g h o r i z o n H i g h l i g h t e d k e y a r e a s f r o m S R 1 5-1 8 a n d S R 1 5-1 9 The SR 15-18 and SR 15-19 guidance effectively subdivides the current 33 CCAR BHCs and future filers into two tiers, with higher expectations for the first tier of Large Institution Supervision Coordinating Committee (LISCC) and Large and Complex firms. 4 R e f e r e n c e d c h a n g e s f r o m J a n u a r y 2 1, 2 0 1 6 u p d a t e o f F R Y - 1 4 A / Q / M s c h e d u l e s R eq u i r em en t t o p o p u l at e n ew S c h edu l e F ( B u si n ess P l an C h an g es) with planned material business changes (e.g., merger, acquisition, di vest i t u r e) f o r t h e 2016 C C A R c y c l e, f o r m al i z i n g i n f o r m at i o n t h at h ad b een c ap t u r ed i n p r i o r C C A R c y c l es o n an ad-h o c b asi s. CFO attestation (which will start December 31, 2016, for FR Y-14A/Q/Ms as of that date) for nine current and seven future LISCC firms focusing on attestation that: Projections and actuals data is prepared in conformance w i t h F R B i n st r u c t i o n s Data is materially accurate and supported by effective internal c o n t r o l s an d r evi ew s b y sen i o r m an ag em en t, an d t h at m at er i al w eak n esses an d er r o r s i n dat a ar e p r o m p t l y r ep o r t ed t o t h e F R B as they are identified S R 1 5-1 8 h as en h an c ed em p h asi s an d r el at i vel y h i g h er expectations for LISCC and Large and Complex firms in the areas of modeling, risk identification, data management and g o ver n an c e. H i g h l i g h t s i n c l u de: Higher expectations toward usage of models and q uantitative methods f o r l o sses, b al an c e sh eet an d p r e-p r o vi si o n n et r even u e i n c l u di n g i n c r eased sc r u t i n y o n assumptions i n b al an c e sh eet f o r ec ast i n g Expectation to evaluate risk identification and assessment at l east q uarterly Expectation to use multiple internal scenarios ac r o ss m at er i al r i sk s i n o n g o i n g c ap i t al p l an n i n g Elevated expectations on controls related to q ualitative approaches and overlays Elevated expectations on model perf ormance assessment ( p o t en t i al addi t i o n al sensitivity testing) Enhanced standards for the use of b enchmark models i n c ap i t al p l an n i n g Increased engagement of the RWA production function in the projections of standardized RW A Specific requirement for senior management to review the c ap i t al p l an n i n g p r o c ess q uarterly Re-emphasis on internal audit s role in evaluating the firm s c ap i t al p l an n i n g p r o c ess an d su p p o r t i n g r i sk -m an ag em en t an d i n t er n al c o n t r o l p r ac t i c es More emphasis on use of scenarios for operational risk loss proj ections Elevated expectations on use of internal data S R 1 5-1 9 includes differentiated expectations for Large and Noncomplex firms primarily in the following areas: Use of quantitative approaches Use of internal data Use of benchmark models Operational risk loss projections Trading exposures Validation of vendor models RWA projections 4 LISCC Firms and Large and Complex Firms are defined as US BHCs and intermediate holding companies (IHCs) of FBOs that have total consolidated assets greater than $250 billion, have consolidated total on-balance sheet foreign exposure greater than $10 billion and/or are subject to the Federal Reserve s LISCC. Large and Complex applies to slightly less than half of the current 33 CCAR firms. Large and Noncomplex Firms are defined as US BHCs and IHCs of FBOs that have total consolidated assets greater than $10 billion but less than $250 billion, have consolidated total on-balance sheet foreign exposure less than $10 billion and are not subject to the Federal Reserve s LISCC. The remaining CCAR firms are designated Large and Noncomplex. 2 2016. All Rights Reserved.

3 O t h e r n o t e w o r t h y i t e m s i n t h e i n s t r u c t i o n s CCAR will be integrated into the FRB s ongoing supervisory activities conducted throughout the year, and ongoing reviews will be focused specifically on risk management, internal controls, audit and corporate governance. The qualitative assessment for CCAR 2016 will focus on areas highlighted in SR 15-18 and SR 15-19, including governance, risk management, internal controls, capital policies, scenario design and projection methodologies. Related to bank holding company (BHC) baseline planned capital actions, BHCs may include lower distributions in the second quarter of the p l an n i n g c y c l e b u t c an n o t, w i t h o u t F R B ap p r o val, i n c l u de o r ex ec u t e a l ar g er am o u n t o f c ap i t al di st r i b u t i o n s t h an i n t h e p r i o r y ear s c ap i t al p l an. BHCs are expected to reflect conservative common dividend payout ratios in their capital plans. Payout ratios above 30% will receive higher scrutiny and will be reviewed against a BHC s ability to meet its baseline earnings projections. Unless effective December 31, 2015, new accounting standards should not be reflected in projections. BHC subsidiaries of foreign banking organizations (FBOs) that will be designated as the US intermediate holding company (IHC) must include i n t h ei r c ap i t al p l an an assessm en t o f h o w t h e t r an sf er s o f su b si di ar y asset s an d l i ab i l i t i es w o u l d af f ec t t h e B H C s c ap i t al adeq u ac y. T h e C C A R 2 0 1 6 s c e n a r i o s h a v e s o m e k e y d i f f e r e n c e s i n f e a t u r e s a n d s e v e r i t y, i n c l u d i n g n e g a t i v e U S s h o r t - t e r m i n t e r e s t r a t e s T h e F R B p r o vi ded t h e sam e 28 i n di c at o r s o f ec o n o m i c an d m ar k et c o n di t i o n s t o desc r i b e t h e 2016 C C A R sc en ar i o s as i n 2015. T h e global market shock (GMS) risk factor shock templates were not released and are expected by March 1, 2016 as per Regulation YY. 5 S u p e r v i s o r y s e v e r e l y a d v e r s e ( s e v e r e l y a d v e r s e ) s c e n a r i o T h e S ever el y A dver se S c en ar i o assu m es n eg at i ve U S sh o r t -t er m i n t er est r at es an d a m o r e sever e do w n t u r n i n t h e U S ec o n o m y as c o m p ar ed t o l ast y ear. T h e sc en ar i o i n c l u des a g l o b al r ec essi o n, w i t h a severe recession in three of the four country blocks (US, EU, UK, J ap an ) an d a m i l d r ec essi o n i n devel o p i n g A si a, an d a h ei g h t en ed period of corporate financial stress. [See more detail on the severely adverse scenario in Tables 1-9 on pages 5 and 6] S u p e r v i s o r y a d v e r s e ( a d v e r s e ) s c e n a r i o The Adverse Scenario assumes mild deflation with consumer prices falling and lower paths of US Treasury yields relative to last year. It al so assu m es a m o der at e r ec essi o n i n t h e U S, b r o adl y c o n si st en t w i t h l ast y ear s adver se sc en ar i o, an d m o der at e r ec essi o n s i n t h e eu r o ar ea, t h e U n i t ed K i n g do m, an d J ap an, as w el l as b el o w -t r en d g r o w t h i n devel o p i n g A si a. S u p e r v i s o r y b a s e l i n e ( b a s e l i n e ) s c e n a r i o T h e B asel i n e S c en ar i o h as a m o der at e ec o n o m i c ex p an si o n i n t h e U S an d i n t er n at i o n al l y at g r o w t h r at es an d l evel s si m i l ar t o l ast y ear s b asel i n e sc en ar i o. 6 G M S a n d c o u n t e r p a r t y d e f a u l t s e v e r e l y a d v e r s e s c e n a r i o The 2016 GMS severely adverse scenario is qualitatively described in t h e o ver al l sc en ar i o r el ease, w i t h h i g h l i g h t s i n c l u di n g : A sudden sharp increase in general risk premiums and credit risk, significant market illiquidity and the distress of one or more large en t i t i es t h at r ap i dl y sel l a var i et y o f asset s i n t o a f r ag i l e m ar k et General decline in US Treasury rates, resulting in negative shortt er m r at es Peak-to-trough asset value changes that are generally comparable to 2007 2009, with declines in markets less affected by det er i o r at i n g l i q u i di t y g en er al l y c o m p ar ab l e t o t h e sec o n d h al f o f 2008 Breakdowns in historical basis spreads, with spread widening b et w een c ash an d t o -b e-an n o u n c ed ( T B A ) f o r w ar d m ar k et s an d c o r p o r at e b o n ds an d c r edi t def au l t sw ap s Larger widening of credit spreads for municipal, sovereign and advan c ed ec o n o m i es c o r p o r at e p r o du c t s an d g r eat er dec l i n es i n t h e val u e o f p r i vat e eq u i t y i n vest m en t s, r ec en t l y i ssu ed sec u r i t i z ed p r o du c t s an d n o n -ag en c y r esi den t i al m o r t g ag e-b ac k ed sec u r i t i es as c o m p ar ed t o 2015 G M S a n d c o u n t e r p a r t y d e f a u l t a d v e r s e s c e n a r i o The adverse scenario simulates an extended low growth en vi r o n m en t an d m u t ed vo l at i l i t y ac r o ss m o st asset c l asses an d t er m st r u c t u r es. K ey c h an g es f r o m t h e 2015 adver se sc en ar i o i n c l u de n ew el em en t s t h at ar e di st i n c t f r o m an d n o t m ec h an i c al l y l i n k ed t o t h e sever el y adver se sc en ar i o s. 5 http://www.ecfr.gov/cgi-bin/retrieveecfr?gp=&sid=cf69eb924cea74aac02264a0ea36 596d&r=PART&n=12y4.0.1.1.17#se12.4.252_154 6 Note: the GMS as-of date is January 4, 2016, and similar to prior year, banks may use an al t er n at e as-o f dat e t h at c o r r esp o n ds t o t h ei r w eek l y i n t er n al r i sk r ep o r t i n g b et w een January 4 8, 2016. C C AR 2016 EY Regula tory Alert

a n d n e g a t i v e i n t e r e s t r a t e s i n t r o d u c e s o m e n e w a n a l y t i c a l c o n s i d e r a t i o n s A k ey an al y t i c al c h al l en g e f o r C C A R 2016 w i l l c o m e f r o m t h e n eg at i ve 3-m o n t h T r easu r y r at e t h at em er g es i n t h e sec o n d q u ar t er o f t h e nine-quarter severely adverse scenario and will also be a feature for the GMS severely adverse scenario. Negative short-term interest rates ar e a p h en o m en o n w h i c h h as n o t y et o c c u r r ed i n t h e U S b u t ar e o c c u r r i n g at t h e m o m en t i n sever al m ar k et s ar o u n d t h e w o r l d ( e.g., i n t er b an k markets for CHF, DKK, EUR, JPY and SEK). Negative US short-term interest rates may require firms to challenge and enhance the output from certain projection and valuation models. S cenario expansion model adj ustments. S c en ar i o ex p an si o n m o del s u sed t o t r an sl at e t h e c o r e m ac r o ec o n o m i c var i ab l es o r m ar k et r i sk factors to the full suite of revaluation or projection model input parameters may have to be examined to assess if the use of floors or lower boundaries in such expansion models will need modification to accommodate the projection of negative interest rates. PPN R (pre-provision net revenue) proj ection adj ustments. Models or other approaches to project income using variables that are directly or c l o sel y r el at ed t o t h e 3-m o n t h T r easu r y r at e m ay n eed addi t i o n al r evi ew an d an al y si s, an d p o t en t i al o ver l ay s t o r esu l t s. A s n eg at i ve U S r at es w o u l d n o t h ave f eat u r ed i n m o del h i st o r i c al devel o p m en t al dat a set s b an k s m ay w an t t o l o o k c l o sel y at t h e c al i b r at i o n o f t h ei r m o del s, an d challenge results in the context of potential customer/counterparty behavior and product pricing in the negative rate scenario. Valuation model adj ustments. Certain valuation models for products such as interest rate caps/floors and swaptions may rely on traditional l o g -n o r m al m o del s, w h i c h do n o t al l o w f o r n eg at i ve i n t er est r at e p ar am et er s. D ep en di n g o n w h i c h ( i f an y ) r at e sh o c k s r esu l t i n n eg at i ve i n t er est r at es, so m e b an k s m ay st i l l n eed t o assess al l p r o du c t s t h at ar e i m p ac t ed b y n eg at i ve i n t er est r at e p ar am et er s an d t est t h ei r val u at i o n m o del s f r o m b o t h a m et h o do l o g y an d i m p l em en t at i o n p er sp ec t i ve t o p r o vi de t h at t h ese m o del s c an f u n c t i o n p r o p er l y u n der n eg at i ve r at e sc en ar i o s. Credit loss models. These models may be impacted to a lesser extent because the majority of credit models typically do not use interest rates as a material direct input, relying instead on House Price Index (HPI), unemployment, GDP and so on. W h a t i s n e x t? U p c om ing da tes: March 1, 2 016: g l o b al m ar k et sh o c k f ac t o r s du e ( w i l l l i k el y b e r el eased ear l i er ) A pril 5, 2 016: 2016 capital plan and FR Y-14A submissions due E arly J une: F R B t o p r o vi de B H C s w i t h an o p p o r t u n i t y f o r a o n e-t i m e r edu c t i o n o f p l an n ed c ap i t al di st r i b u t i o n s b ased o n i n i t i al p o st -st r ess results, which may include reduction in all types of capital distributions, not just common stock distributions J une 30, 2 016: c o m m u n i c at i o n deadl i n e f o r dec i si o n s b y t h e F R B BHCs to disclose company-run stress test results within 15 days of the release of final FRB results 4 2016. All Rights Reserved.

Comparison of select FRB variables (CCAR 2015 vs. 2016) severely adverse Table 1: Real GDP growth Table 2: Unemployment 5.0 Real GDP Growth (15 V 16) 15.0 Unemployment (15 V 16) 1-5.0-1 2015 sev. adv. 2016 sev. adv. 5.0 2015 sev. adv. 2016 sev. adv. Table 3: CPI 6.0 CPI (15 V 16) Table 4: 3-Month Treasury yield 0.2 3 Month Treasury Yield (15 V 16) 4.0-0.2 2.0 2015 sev. adv. 2016 sev. adv. -0.4-0.6 2015 sev. adv. 2016 sev. adv. Table 5: BBB corporate yield 7.0 BBB Corporate Yield (15 V 16) Table 6: Fixed-rate 30-year mortgage 6.0 Fixed-rate 30-year mortgage (15 V 16) 6.0 5.0 4.0 4.0 3.0 2015 sev. adv. 2016 sev. adv. 2.0 2015 sev. adv. 2016 sev. adv. Table 7: House Price Index 190 HPI (15 V 16) Table 8: VIX 100 VIX over Forecast Horizon (15 V 16) 140 50 2015 sev. adv. 2016 sev. adv. 90 2015 sev. adv. 2016 sev. adv. 0 CCAR 2016 EY Regulatory Alert 5

T a b l e 9 : C o m p a r i s o n o f s e l e c t F R B v a r i a b l e s ( C C A R 2 0 1 5 v s. 2 0 1 6 ) s e v e r e l y a d v e r s e s c e n a r i o Macroeconomic factor 3Q 14 jump-off 9Q 7 C C A R C C A R C C A R 2015 2016 2016 Δ from 3Q 14 t o 4Q 16 en di n g val u e 4Q 15 jump-off 9Q 7 Δ from 4Q 15 to 1Q 18 en di n g val u e vs. C C A R 2015 R el at i ve S ever i t y Indicator 8 2016 vs. 2015 8, 8 Real GDP growth (%) 3.1-6.1-9.2 3.0 1.9-7.5-9.4 3.0-1.4 Unemployment rate (%) 6.1 10.1 4.0 9.9 5.0 1 5.0 9.8-0.1 CPI inflation rate (%) 1.1 1.1-1.9 0.2 0.2-1.6-0.9 3-month Treasury yield (%) 0.1 0.1 0.1 0.1-0.5-0.6-0.5-0.6 10-year Treasury yield (%) 2.5 0.9-1.6 1.9 2.2 0.2-2.0 1.2-0.7 BBB corporate yield (%) 4.2 6.3 2.1 5.5 4.6 6.4 1.8 5.3 0.1 Fixed-rate 30-year mortgage (%) 4.1 4.2 0.1 4.7 3.9 3.2-0.7 4.1-1.0 Prime Rate (%) 3.3 3.2-0.1 3.2 3.3 2.6-0.7 2.6-0.6 Dow Jones Total Stock Market Index 20,459 606.3-11, 52.5 11, 521 21, 101 10,395.5-10,705.4 16, 18 0 1,789 House Price Index 172.1 128.4-43.7 128.4 18 3.1 138.5-44.6 138.5 10.1 CRE Price Index 236.0 154.4-8 1.6 154.6 273.4 190.1-8 3.3 190.1 35.7 Market Volatility Index 17.0 79.0 62.0 21.6 24.4 73.3 48.9 22.8-5.7 7 T r o u g h i s an i n di c at o r o f sever i t y an d as a r esu l t val u es f o r u n em p l o y m en t, B B B corporate yield and VIX represent the peak value over the nine projection quarters. 8 Actual scenario severity is based on each BHC s specific exposure and the relative assessm en t i s a g en er al i n di c at o r o f ex p ec t ed sever i t y ac r o ss B H C s. 6 2016. All Rights Reserved.

EY contacts Adam Girling Principal + 1 212 773 9514 adam.girling@ey.com Marc Saidenberg Principal +1 212 773 9361 marc.saidenberg@ey.com Michael Sheptin Principal +1 212 773 6032 michael.sheptin@ey.com Darrin Williams Principal +1 732 516 3665 darrin.williams@ey.com Tom Jackson Executive Director +1 704 331 0368 tom.jackson@ey.com Preston Thompson Executive Director +1 617 585 3485 preston.thompson@ey.com

EY A ssu r an c e T ax T r an sac t i o n s A dvi so r y Ab out EY EY is a global leader in assurance, tax, transaction and advisory ser vi c es. T h e i n si g h t s an d q u al i t y ser vi c es w e del i ver h el p b u i l d t r u st an d c o n f i den c e i n t h e c ap i t al m ar k et s an d i n ec o n o m i es t h e w o r l d o ver. W e devel o p o u t st an di n g l eader s w h o t eam t o del i ver o n o u r p r o m i ses t o al l of our stakeholders. In so doing, we play a critical role in building a better w o r k i n g w o r l d f o r o u r p eo p l e, f o r o u r c l i en t s an d f o r o u r c o m m u n i t i es. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited b y g u ar an t ee, do es n o t p r o vi de ser vi c es t o c l i en t s. F o r m o r e i n f o r m at i o n ab o u t o u r o r g an i z at i o n, p l ease vi si t ey.c o m. is a client-serving member firm of Ernst & Young G l o b al L i m i t ed o p er at i n g i n t h e U S. EY is a lea der in serving the glob a l f ina nc ia l servic es m a rk etp la c e Nearly 43,000 EY financial services professionals around the world p r o vi de i n t eg r at ed assu r an c e, t ax, t r an sac t i o n an d advi so r y ser vi c es t o o u r asset m an ag em en t, b an k i n g, c ap i t al m ar k et s an d i n su r an c e c l i en t s. In the Americas, EY is the only public accounting organization with a sep ar at e b u si n ess u n i t dedi c at ed t o t h e f i n an c i al ser vi c es m ar k et p l ac e. C r eat ed i n 2000, t h e A m er i c as F i n an c i al S er vi c es O r g an i z at i o n t o day includes more than 6,900 professionals at member firms in over 50 l o c at i o n s t h r o u g h o u t t h e U S, t h e C ar i b b ean an d L at i n A m er i c a. EY professionals in our financial services practices worldwide align with key global industry groups, including EY s Global Wealth & Asset Management Center, Global Banking & Capital Markets Center, Global Insurance Center and Global Private Equity Center, which act as hubs f o r sh ar i n g i n du st r y -f o c u sed k n o w l edg e o n c u r r en t an d em er g i n g t r en ds an d r eg u l at i o n s i n o r der t o h el p o u r c l i en t s addr ess k ey i ssu es. O u r p r ac t i t i o n er s sp an m an y di sc i p l i n es an d p r o vi de a w el l -r o u n ded u n der st an di n g o f b u si n ess i ssu es an d c h al l en g es, as w el l as i n t eg r at ed ser vi c es t o o u r c l i en t s. With a global presence and industry-focused advice, EY s financial ser vi c es p r o f essi o n al s p r o vi de h i g h -q u al i t y assu r an c e, t ax, t r an sac t i o n an d advi so r y ser vi c es, i n c l u di n g o p er at i o n s, p r o c ess i m p r o vem en t, r i sk an d t ec h n o l o g y, t o f i n an c i al ser vi c es c o m p an i es w o r l dw i de. 2016. A l l R i g h t s R eser ved. EYG no. CK1041 1601-1813489 ED None T h i s m at er i al h as b een p r ep ar ed f o r g en er al i n f o r m at i o n al p u r p o ses o n l y an d i s n o t i n t en ded t o b e r el i ed u p o n as ac c o u n t i n g, t ax, o r o t h er p r o f essi o n al advi c e. P l ease r ef er t o y o u r advi so r s f o r sp ec i f i c advi c e. ey.c om