This is the accessible text file for GAO report number GAO-10-861
entitled 'Troubled Asset Relief Program: Bank Stress Test Offers
Lessons as Regulators Take Further Actions to Strengthen Supervisory
Oversight' which was released on September 29, 2010.
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
September 2010:
Troubled Asset Relief Program:
Bank Stress Test Offers Lessons as Regulators Take Further Actions to
Strengthen Supervisory Oversight:
GAO-10-861:
GAO Highlights:
Highlights of GAO-10-861, a report to congressional committees.
Why GAO Did This Study:
The Supervisory Capital Assessment Program (SCAP) was established
under the Capital Assistance Program (CAP)—a component of the Troubled
Asset Relief Program (TARP)—to assess whether the 19 largest U.S. bank
holding companies (BHC) had enough capital to withstand a severe
economic downturn. Led by the Board of Governors of the Federal
Reserve System (Federal Reserve), federal bank regulators conducted a
stress test to determine if these banks needed to raise additional
capital, either privately or through CAP. This report (1) describes
the SCAP process and participants’ views of the process, (2) assesses
SCAP’s goals and results and BHCs’ performance, and (3) identifies how
regulators and the BHCs are applying lessons learned from SCAP. To do
this work, GAO reviewed SCAP documents, analyzed financial data, and
interviewed regulatory, industry, and BHC officials.
What GAO Found:
The SCAP process appeared to have been mostly successful in promoting
coordination, transparency, and capital adequacy. The process utilized
an organizational structure that facilitated coordination and
communication among regulatory staff from multiple disciplines and
organizations and with the BHCs. Because SCAP was designed to help
restore confidence in the banking industry, regulators took unusual
steps to increase transparency by releasing details of their
methodology and sensitive BHC-specific results. However, several
participants criticized aspects of the SCAP process. For example, some
supervisory and bank industry officials stated that the Federal
Reserve was not transparent about the linkages between some of the test’
s assumptions and results. But most of the participants in SCAP agreed
that despite these views, coordination and communication were
effective and could serve as a model for future supervisory efforts.
According to regulators, the process resulted in a methodology that
yielded credible results. By design, the process helped to ensure that
BHCs would be capitalized for a potentially more severe downturn in
economic conditions from 2009 through 2010.
SCAP largely met its goals of increasing the level and quality of
capital held by the 19 largest U.S. BHCs and, more broadly,
strengthening market confidence in the banking system. The stress test
identified 9 BHCs that met the capital requirements under the more
adverse scenario and 10 that needed to raise additional capital. Nine
of the 10 BHCs were able to raise capital in the private market, with
the exception of GMAC LLC, which received additional capital from the
U.S. Department of the Treasury (Treasury). The resulting capital
adequacy of the 19 BHCs has generally exceeded SCAP’s requirements,
and two-thirds of the BHCs have either fully repaid or begun to repay
their TARP investments. Officials from the BHCs, credit rating
agencies, and federal banking agencies indicated that the Federal
Reserve’s public release of the stress test methodology and results in
the spring of 2009 helped strengthen market confidence. During the
first year of SCAP (2009), overall actual losses for these 19 BHCs
have generally been below GAO’s 1-year pro rata loss estimates under
the more adverse economic scenario. Collectively, the BHCs experienced
gains in their securities and trading and counterparty portfolios.
However, some BHCs exceeded the GAO 1-year pro rata estimated 2009
losses in certain areas, such as consumer and commercial lending. Most
notably, in 2009, GMAC LLC exceeded the loss estimates in multiple
categories for the full 2-year SCAP period. More losses in the
residential and commercial real estate markets and further
deterioration in economic conditions could challenge the BHCs, even
though they have been deemed to have adequate capital levels under
SCAP.
SCAP provided a number of important lessons for regulators about the
benefits of increased transparency, the need for regulators to
strengthen bank supervision, the need for regulators and BHCs to
improve their risk identification and assessment practices, and the
need for regulators to improve coordination and communication. First,
SCAP underscored the potential benefits that increased transparency
about the financial health of the nation’s largest BHCs can provide.
Many experts have said that the lack of transparency about potential
losses from certain assets contributed significantly to the
instability in financial markets during the current crisis. But
transparency in the banking supervisory process is a controversial
issue. Some observers say that publicly disclosing sensitive bank
information without a federal capital backstop could have unintended
negative effects, such as runs on banks, that would disproportionately
affect weaker banks. However, other observers believe that more
transparency about banks’ asset valuations and losses could help the
public better understand the risk exposures of BHCs, increase market
discipline, and improve the oversight of these institutions. A final
analysis by the Federal Reserve of BHCs’ performance during the full 2-
year SCAP period can help in this regard. The Federal Reserve and
other banking regulators could benefit from developing a plan to
improve the transparency of bank supervision. Second, SCAP showed that
more robust regulatory oversight of bank stress tests was necessary to
better understand banks’ capacity to withstand downturns in the
economy. Regulators and BHC officials commented that internal bank
stress tests prior to SCAP did not comprehensively stress their
portfolios. The Federal Reserve is finalizing examiner guidance for
assessing capital adequacy, including stress testing, but it has not
established criteria for assessing the rigor of the BHCs’ stress test
assumptions. Without more robust guidance, ensuring that stress tests
are being evaluated thoroughly and consistently is difficult. Third,
the SCAP exercise highlighted opportunities to enhance both the
process and data inputs for conducting future stress tests. The
Federal Reserve has started to build a plan to enhance its risk
identification and assessment infrastructure in response to the
financial crisis, but further planning is needed to reflect recent
changes under the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010. Finally, SCAP demonstrated the need for robust
coordination and communication among regulators in examining complex
institutions. While SCAP promoted coordination and communication,
further efforts are needed to ensure the participation of relevant
regulators in multiagency examinations of banks.
Table 1: Indicative Loss Rates Estimates and Actual SCAP BHCs and
Banking Industry Average Loss Rates, December 31, 2009:
Loan category: First-lien mortgage;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 7-8.5%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 3.5-4.25%;
2009 actual loss rates: SCAP BHCs average loss rate: 1.9%;
2009 actual loss rates: Banking industry average loss rate[C]: 1.7%.
Loan category: Second/junior lien mortgages;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 12-16%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 6-8%;
2009 actual loss rates: SCAP BHCs average loss rate: 4.4%;
2009 actual loss rates: Banking industry average loss rate[C]: 3.9%.
Loan category: Commercial and industrial;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 5-8%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 2.5-4%;
2009 actual loss rates: SCAP BHCs average loss rate: 2.5%;
2009 actual loss rates: Banking industry average loss rate[C]: 2.3%.
Loan category: Commercial real estate;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 9-12%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 4.5-6%;
2009 actual loss rates: SCAP BHCs average loss rate: 2.3%;
2009 actual loss rates: Banking industry average loss rate[C]: 2.4%.
Loan category: Credit cards;
[Empty];
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 18-20%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 9-10%;
2009 actual loss rates: SCAP BHCs average loss rate: 10.1%;
2009 actual loss rates: Banking industry average loss rate[C]: 10.2%.
Loan category: Other consumer;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 8-12%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 4-6%;
2009 actual loss rates: SCAP BHCs average loss rate: 4.1%;
2009 actual loss rates: Banking industry average loss rate[C]: 4.4%.
Loan category: Other loans;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 4-10%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 2-5%;
[Empty];
2009 actual loss rates: SCAP BHCs average loss rate: 1.4%;
2009 actual loss rates: Banking industry average loss rate[C]: 1.1%.
Sources: Federal Reserve SCAP results report, GAO analysis of SNL
Financial Y-9C regulatory data, and Moody's Investors Service for
prime, Alt-A, and subprime mortgage loss rates data.
[A] Data as of December 31, 2010.
[B] GAO calculated the more adverse 1-year pro rata loss rate by
dividing the SCAP more adverse 2-year loss rates by 2 (i.e., the
straight-line method). A key limitation of this approach is that it
assumes equal distribution of losses, revenues, expenses, and changes
to reserves over time, although these items were unlikely to be
distributed evenly over the 2-year period. Another important
consideration is that actual results were not intended and should not
be expected to align with the SCAP projections.
[C] Data are for BHCs with greater than $1 billion in total assets.
[End of table]
What GAO Recommends:
This report recommends that the Federal Reserve complete a final 2-
year SCAP analysis, and apply lessons learned from SCAP to improve
transparency of bank supervision, examiner guidance, risk
identification and assessment, and regulatory coordination. The
Federal Reserve agreed with our five recommendations and noted current
actions that it has underway to address them. Treasury agreed with the
report’s findings.
View [hyperlink, http://www.gao.gov/products/GAO-10-861] or key
components. For more information, contact Orice Williams Brown at
(202) 512-8678 or williamso@gao.gov.
[End of section]
Contents:
Letter:
Background:
SCAP Process Generally Viewed as Promoting Coordination, Transparency,
and Capital Adequacy:
While SCAP Increased Capital Levels and Improved Confidence in the
Banking System, BHCs Could Face Ongoing Challenges:
SCAP Provided Lessons That Could Help Regulators Strengthen
Supervisory Oversight and BHCs Improve Risk Management Practices:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Status of Bank Holding Companies' TARP Investments as
September 22, 2010:
Appendix III: One-Year Actual Performance Compared to GAO's Pro rata
Stress Test Loss Projections for Each of the 19 SCAP BHCs:
Appendix IV: Comments from the Board of Governors of the Federal
Reserve System:
Appendix V: Comments from the Department of the Treasury's Office of
Financial Stability:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Indicative Loss Rates Estimates and Actual SCAP BHCs and
Banking Industry Average Loss Rates, December 31, 2009:
Table 2: Summary of Capital Raised by 10 BHCs to Meet Their SCAP
Capital Buffer Amount, as of November 9, 2009:
Table 3: Capital Measures for SCAP BHCs, December 31, 2008 and
December 31, 2009:
Table 4: Percentage Change in Tier I Capital Ratios, December 31,
2008, and December 31, 2009:
Table 5: Actual and GAO Pro Rata Estimates of Aggregate Losses and
Changes in Resources Other than Capital to Absorb Losses across the 19
SCAP BHCs, December 31, 2009:
Table 6: Items Used to Calculate Tier 1 Capital, Asset Losses, PPNR,
and ALLL:
Table 7: Tier 1 Common Capital Calculation:
Table 8: Crosswalk of Y-9C Net Charge-Offs and Asset Classifications
to Classifications Used by SCAP:
Table 9: Crosswalk of Y-9C Loans and Lease Financing Receivables to
and Classifications used by SCAP:
Table 10: Status of TARP Investments for the 19 BHCs Participating in
SCAP, as of September 22, 2010:
Table 11: Identification of 19 BHCs Subject to the Stress Test:
Table 12: American Express Company:
Table 13: Bank of America Corporation:
Table 14: BB&T Corporation:
Table 15: The Bank of New York Mellon Corporation:
Table 16: Capital One Financial Corporation:
Table 17: Citigroup Inc.
Table 18: Fifth Third Bancorp:
Table 19: GMAC LLC:
Table 20: The Goldman Sachs Group, Inc.
Table 21: JPMorgan Chase & Co.
Table 22: KeyCorp:
Table 23: MetLife, Inc.
Table 24: Morgan Stanley:
Table 25: PNC Financial Services Group, Inc.
Table 26: Regions Financial Corporation:
Table 27: State Street Corporation:
Table 28: SunTrust Banks, Inc.
Table 29: U.S. Bancorp:
Table 30: Wells Fargo & Company:
Figures:
Figure 1: Timeline of Key Activities Regarding Implementation of SCAP,
February 10, 2009, through December 31, 2009:
Figure 2: Commercial Bank 2-Year Loan Loss Rates from 1921 through
2013 Compared to SCAP Loan Loss Rate:
Figure 3: Actual Economic Performance to Date Versus SCAP More Adverse
Assumptions:
Figure 4: Gross Common Equity Issuance by Banks and Thrifts, 2000 to
First Quarter 2010:
Figure 5: Stock Market Prices, October 2007 through March 2010:
Figure 6: Bank Credit Default Swap Spreads, January 2007 through March
2010:
Figure 7: Comparison of Actual and GAO Pro Rata Estimated Losses for
Consumer and Commercial Loans, December 31, 2009:
Figure 8: Comparison of Actual and GAO Pro Rata Estimated Gains and
Losses for Securities Available for Sale and Held to Maturity,
December 31, 2009:
Figure 9: Comparison of Actual and GAO Pro Rata Estimated Gains and
Losses for Trading and Counterparty, December 31, 2009:
Figure 10: Change in the Percentage of Nonperforming Loans for
Applicable SCAP BHCs, by Loan Type, First Quarter 2007 through Fourth
Quarter 2009:
Figure 11: Comparison of Actual and GAO Pro Rata Estimated Resources
Other Than Capital to Absorb Losses, December 31, 2009:
Abbreviations:
ALLL: allowance for loan and lease losses:
BHC: bank holding company:
BB&T: BB&T Corporation:
CAP: Capital Assistance Program:
CES: common equivalent securities:
CPP: Capital Purchase Program:
DTA: deferred tax asset:
EESA: Emergency Economic Stabilization Act of 2008:
ESOP: Employee Stock Ownership Plan:
FDIC: Federal Deposit Insurance Corporation:
FSP: Financial Stability Plan:
GDP: gross domestic product:
GMAC: GMAC LLC:
ICAAP: internal capital adequacy assessment process:
OCC: Office of the Comptroller of the Currency:
PPNR: preprovision net revenue:
SCAP: Supervisory Capital Assessment Program:
TARP: Troubled Asset Relief Program:
TIP: Targeted Investment Program:
Y-9C: Consolidated Financial Statements for Bank Holding Companies-FR
Y-9C:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 29, 2010:
Congressional Committees:
The recent financial crisis seriously undermined confidence in the
nation's financial system and institutions. In February 2009, to help
restore confidence, the U.S. Department of the Treasury (Treasury)
announced the Financial Stability Plan, which established the
Supervisory Capital Assessment Program (SCAP).[Footnote 1] SCAP, as
implemented by the Board of Governors of the Federal Reserve System
(Federal Reserve) and other federal banking regulators,[Footnote 2]
was to determine through a stress test whether the largest 19 U.S.
bank holding companies (BHC)[Footnote 3] had enough capital for the
next 2 years (2009-2010) to support their lending activities and
survive a second similar economic shock.[Footnote 4] As of December
31, 2008, the largest 19 BHCs accounted for approximately 67 percent
of the assets and more than 50 percent of loans in the U.S. banking
system. BHCs that were found to need additional capital would be
allowed, and were encouraged, to raise the funds privately, but if
they could not, Treasury would provide capital infusions using funding
available under the Troubled Asset Relief Program's (TARP) Capital
Assistance Program (CAP).[Footnote 5] However, Treasury made no
investments under CAP and terminated the program in November 2009.
When SCAP was first announced in February 2009, and again around the
time the Federal Reserve released the results of the stress test in
May 2009, some academics, market participants, and others raised
concerns about the test, noting that the assumptions used in the more
adverse economic scenario were not severe enough and that the test did
not account for differences in institutions' business models.
As part of GAO's continued analysis and monitoring of Treasury's
process for implementing the Emergency Economic Stabilization Act of
2008,[Footnote 6] this report on the stress test expands on SCAP
activities that we reported on in June 2009.[Footnote 7] Specifically,
this report (1) describes the process used to design and conduct the
stress test and participants' views on the process, (2) describes the
extent to which the stress test achieved its goals and compares its
estimates with the BHCs' actual results, and (3) identifies the
lessons regulators and BHCs learned from SCAP and examines how each
are using those lessons to enhance their risk identification and
assessment practices.
To meet the report's objectives, we reviewed the Federal Reserve's The
Supervisory Capital Assessment Program: Design and Implementation
(SCAP design and implementation document) dated April 24, 2009, and
The Supervisory Capital Assessment Program: Overview of Results (SCAP
results document) dated May 7, 2009. In addition to the publicly
released BHC-level loss estimates, we analyzed the initial stress test
results that the Federal Reserve provided to each BHC, the subsequent
adjustments the Federal Reserve made to these results, and its reasons
for making them. We also reviewed the BHCs' quarterly regulatory
filings, such as the Federal Reserve's 2009 Consolidated Financial
Statements for Bank Holding Companies--FR Y-9C (Y-9C); form 10-Qs and
annual form 10-Ks; speeches, testimonies, and articles regarding SCAP
and stress testing; and BHC presentations to shareholders and earnings
reports. To more completely understand the execution of SCAP, we
completed a literature search of stress tests that other entities have
conducted, such as the Committee of European Banking Supervisors and
the International Monetary Fund. We also reviewed the Congressional
Oversight Panel's analysis of SCAP. In addition, we reviewed the
capital plans of the 10 BHCs that were required to raise capital to
satisfy their SCAP capital requirement. We collected and analyzed data
on the BHCs' actual performance from a private financial database of
public information and compared it with the 2-year SCAP estimates and
with GAO's 1-year pro rata loss estimates for the more adverse
scenario (pro rata loss estimate). GAO calculated the pro rata loss
estimates by dividing the SCAP more adverse 2-year loss estimates by
2. This pro rata estimate methodology has some limitations, because
losses, expenses, revenues, and changes to reserves are historically
unevenly distributed and loss rates over a 2-year period in an
uncertain economic environment can follow an inconsistent path.
However, the Federal Reserve, the Office of the Comptroller of the
Currency (OCC), credit rating agencies, an SNL Financial analyst, and
all of the BHCs we interviewed that are tracking performance relative
to SCAP estimates are also using the same methodology. We obtained
Federal Reserve and BHCs comments on our performance comparison.
Further, we interviewed regulatory and BHC officials to get their
views on the SCAP stress test. Regulatory officials included bank
examiners, economists, and attorneys from the Federal Reserve; the
Federal Reserve district banks; the OCC; the Federal Deposit Insurance
Corporation (FDIC); the Office of Thrift Supervision; and BHC senior
officials, including chief financial officers and chief risk officers,
who participated in the SCAP stress test and were responsible for
coordinating and discussing the results with regulators. These
officials represented several types of BHCs, including traditional,
custodial, investment, auto finance, and credit card institutions.
Finally, we met with credit rating agency officials to get their views
on SCAP and understand their own stress testing practices for banks.
For additional information on the scope and methodology for this
engagement, see appendix I.
We conducted this performance audit from August 2009 to September 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Despite efforts undertaken by TARP to bolster capital of the largest
financial institutions, market conditions in the beginning of 2009
were deteriorating and public confidence in the ability of financial
institutions to withstand losses and to continue lending were further
declining. On February 10, 2009, Treasury announced the Financial
Stability Plan, which outlined measures to address the financial
crisis and restore confidence in the U.S. financial and housing
markets. The goals of the plan were to (1) restart the flow of credit
to consumers and businesses, (2) strengthen financial institutions,
and (3) provide aid to homeowners and small businesses. Under SCAP,
the stress test would assess the ability of the largest 19 BHCs to
absorb losses if economic conditions deteriorated further in a
hypothetical "more adverse" scenario, characterized by a sharper and
more protracted decline in gross domestic product (GDP) growth,
[Footnote 8] a steeper drop in home prices, and a larger rise in the
unemployment rate than in a baseline consensus scenario. BHCs that
were found not to meet the SCAP capital buffer requirement under the
"more adverse" scenario would need to provide a satisfactory capital
plan to address any shortfall by raising funds, privately if possible.
CAP, which was a key part of the plan, would provide backup capital to
financial institutions unable to raise funds from private investors.
Any of the 19 BHCs that participated in the stress test and had a
capital shortfall could apply for capital from CAP immediately if
necessary.[Footnote 9] The timeline in figure 1 provides some
highlights of key developments in the implementation of SCAP.
Figure 1: Timeline of Key Activities Regarding Implementation of SCAP,
February 10, 2009, through December 31, 2009:
[Refer to PDF for image: timeline]
2009:
February 10: Treasury announces the Financial Stability Plan (FSP) to
stabilize and repair the financial system and support the flow of
credit. A key component of FSP is CAP and a key part of CAP is SCAP.
February 23: Treasury announces SCAP or stress test of the largest 19
U.S. BHCs.
February 25: Treasury announces the terms and conditions for CAP.
April 24: The Federal Reserve releases information regarding the
design and implementation of the stress test.
May 7: The Federal Reserve announces the results of the stress test
and 10 of the 19 BHCs are found to need capital.
May 8: Wells Fargo & Company issues $8.6 billion and Morgan Stanley
Inc. issues $8 billion in equity and debt to meet SCAP capital
requirements and/or pay back taxpayer money.
June 8: The 10 BHCs that required capital under SCAP submit plans to
raise capital.
June 17: Nine of the 19 SCAP BHCs repurchased their preferred stock
from Treasury.
June 30: GMAC LLC, a Delaware limited liability company, was converted
into a Delaware corporation and renamed GMAC Inc.
September 30: All BHCs but GMAC Inc. have met or exceeded the capital
requirements of the more adverse scenario.
November 9: Deadline for raising capital. GMAC Inc. is the only BHC
unable to raise the capital as required by SCAP. Also, Treasury closes
CAP with no investments having been made.
December 30: GMAC Inc. is given $3.8 billion in taxpayer money under
TARP’s Automotive Industry Financing Program to meet the level of
capital required by the stress test.
Source: GAO.
Note: On May 10, 2010, GMAC Inc. changed its name to Ally Financial
Inc.
[End of figure]
In a joint statement issued on February 10, 2009, Treasury, along with
the Federal Reserve, FDIC, and OCC (collectively referred to as the
SCAP regulators), committed to design and implement the stress test.
According to a Treasury official, the department generally did not
participate in the design or implementation of SCAP, but was kept
informed by the Federal Reserve during the stress test. The SCAP
regulators developed economic assumptions to estimate the potential
impact of further losses on BHCs' capital under two scenarios. The
baseline scenario reflected the consensus view about the depth and
duration of the recession, and the more adverse scenario reflected a
plausible but deeper and longer recession than the consensus view.
Regulators then calculated how much capital, if any, was required for
each BHC to achieve the required SCAP buffer at the end of 2010 under
the more adverse scenario.
The SCAP assessment examined tier 1 capital and tier 1 common capital,
and the BHCs were required to raise capital to meet any identified
capital shortfall (either tier 1 capital or tier 1 common capital).
Tier 1 risk-based capital is considered core capital--the most stable
and readily available for supporting a bank's operations and includes
elements such as common stock and noncumulative perpetual preferred
stock.[Footnote 10] SCAP's focus on tier 1 common capital, a subset of
tier 1 capital, reflects the recent regulatory push for BHCs to hold a
higher quality of capital.[Footnote 11] The focus on common equity
reflected both the long held view by bank supervisors that common
equity should be the dominant component of tier 1 capital and
increased market scrutiny of common equity ratios, driven in part by
deterioration in common equity during the financial crisis. Common
equity offers protection to more senior parts of the capital structure
because it is the first to absorb losses in the capital structure.
Common equity also gives a BHC greater permanent loss absorption
capacity and greater ability to conserve resources under stress by
changing the amount and timing of dividends and other distributions.
To protect against risks, financial regulators set minimum standards
for the capital that firms are to hold.[Footnote 12] However, SCAP set
a one-time minimum capital buffer target for BHCs to hold to protect
against losses and preprovision net revenue (PPNR) that were worse
than anticipated during the 2009 to 2010 period.[Footnote 13] For the
purposes of SCAP, the one-time target capital adequacy ratios are at
least 6 percent of risk-weighted assets in tier 1 capital and at least
4 percent in tier 1 common capital projected as of December 31, 2010.
For the purposes of the projection, the regulators assumed that BHCs
would suffer the estimated losses and earned revenues in 2009 and 2010
in the more adverse scenario. SCAP regulators conducted the stress
test strictly on the BHCs' assets as of December 31, 2008,[Footnote
14] and--with the exception of off-balance sheet positions subject to
Financial Accounting Statements No. 166 and 167, which assumed in the
analysis to come on balance sheet as of January 1, 2010--did not take
into account any changes in the composition of their balance sheets
over the 2-year time frame.[Footnote 15]
Stress testing is one of many risk management tools used by both BHCs
and regulators. Complex financial institutions need management
information systems that can help firms to identify, assess, and
manage a full range of risks across the whole organization arising
from both internal and external sources and from assets and
obligations that are found both on and off the BHC's balance sheet.
This approach is intended to help ensure that a firmwide approach to
managing risk has been viewed as being crucial for responding to rapid
and unanticipated changes in financial markets. Risk management also
depends on an effective corporate governance system that addresses
risk across the institution and also within specific areas, such as
subprime mortgage lending.[Footnote 16] The board of directors, senior
management, audit committee, internal auditors, external auditors, and
others play important roles in effectively operating a risk management
system. The different roles of each of these groups represent critical
checks and balances in the overall risk management system. However,
the management information systems at many financial institutions have
been called into question since the financial crisis began in 2007.
Identified shortcomings, such as lack of firmwide stress testing, have
led banking organizations and their regulators to reassess capital
requirements, risk management practices, and other aspects of bank
regulation and supervision.[Footnote 17]
Stress testing has been used throughout the financial industry for
more than 10 years, but has recently evolved as a risk management tool
in response to the urgency of the financial crisis. The main evolution
is towards the use of comprehensive firmwide stress testing as an
integral and critical part of firms' internal capital adequacy
assessment processes. In the case of SCAP, the intent of the stress
test was to help ensure that the capital held by a BHC is sufficient
to withstand a plausible adverse economic environment over the 2-year
time frame ending December 31, 2010. The Basel Committee on Banking
Supervision (Basel Committee) issued a document in May 2009 outlining
several principles for sound stress testing practices and supervision.
[Footnote 18] The Basel Committee document endorses stress testing by
banks as a part of their internal risk management to assess the
following:
* Credit risk. The potential for financial losses resulting from the
failure of a borrower or counterparty to perform on an obligation.
* Market risk. The potential for financial losses due to an increase
or decrease in the value of an asset or liability resulting from broad
price movements; for example, in interest rates, commodity prices,
stock prices, or the relative value of currencies (foreign exchange).
* Liquidity risk. The potential for financial losses due to an
institution's failure to meet its obligations because it cannot
liquidate assets or obtain adequate funding.
* Operational risk. The potential for unexpected financial losses due
to a wide variety of institutional factors including inadequate
information systems, operational problems, breaches in internal
controls, or fraud.
* Legal risk. The potential for financial losses due to breaches of
law or regulation that may result in heavy penalties or other costs.
* Compliance risk. The potential for loss arising from violations of
laws or regulations or nonconformance with internal policies or
ethical standards.
* Strategic risk. The potential for loss arising from adverse business
decisions or improper implementation of decisions.
* Reputational risk. The potential for loss arising from negative
publicity regarding an institution's business practices.
SCAP Process Generally Viewed as Promoting Coordination, Transparency,
and Capital Adequacy:
According to SCAP regulators and many market participants we
interviewed, the process used to design and implement SCAP was
effective in promoting coordination and transparency among the
regulators and participating BHCs, but some SCAP participants we
interviewed expressed concerns about the process. The majority of
supervisory and bank industry officials we interviewed stated that
they were satisfied with how SCAP was implemented, especially
considering the stress test's unprecedented nature, limited time
frame, and the uncertainty in the economy. SCAP established a process
for (1) coordinating and communicating among the regulators and with
the BHCs and (2) promoting transparency of the stress test to the
public. In addition, according to regulators, the process resulted in
a methodology that yielded credible results and by design helped to
assure that the BHCs would be sufficiently capitalized to weather a
more adverse economic downturn.
SCAP Process Included Coordination and Communication among the Federal
Bank Regulators and with the BHCs:
Robust coordination and communication are essential to programs like
SCAP when bringing together regulatory staff from multiple agencies
and disciplines to effectively analyze complex financial institutions
and understand the interactions among multiple layers of risk.
Moreover, supervisory guidance emphasizes the importance of
coordination and communication among regulators to both effectively
assess banks and conduct coordinated supervisory reviews across a
group of peer institutions, referred to as "horizontal examinations."
The regulators implemented each phase of SCAP in a coordinated
interagency fashion. Also, while some disagreed, most regulators and
market participants we interviewed were satisfied with the level of
coordination and communication. They also thought that the SCAP
process could serve as a model for future supervisory efforts. The
regulators executed the SCAP process in three broad phases:
* In the first phase, the Analytical Group, comprising interagency
economists and supervisors, generated two sets of economic conditions--
a baseline scenario and a more adverse scenario with a worse-than-
expected economic outcome--and then used these scenarios to aid in
estimating industrywide indicative loan loss rates. To develop these
scenarios, the Analytical Group used three primary indicators of
economic health: the U.S. GDP, housing prices in 10 key U.S.
cities,[Footnote 19] and the annual average U.S. unemployment
rate.[Footnote 20] The baseline scenario reflected the consensus view
of the course for the economy as of February 2009, according to well-
known professional economic forecasters.[Footnote 21] The Federal
Reserve developed the more adverse scenario from the baseline scenario
by taking into account the historical accuracy of the forecasts for
unemployment and the GDP and the uncertainty of the economic outlook
at that time by professional forecasters. The Federal Reserve also
used regulators' judgment about the appropriate severity of assumed
additional stresses against which BHCs would be required to hold a
capital buffer, given that the economy was already in a recession at
the initiation of SCAP.
* In the second phase, several Supervisory Analytical and Advisory
Teams--comprising interagency senior examiners, economists,
accountants, lawyers, financial analysts, and other professionals from
the SCAP regulators--collected, verified, and analyzed each BHC's
estimates for losses, PPNR, and allowance for loan and lease losses
(ALLL).[Footnote 22] The teams also collected additional data to
evaluate the BHC's estimates, and to allow supervisors to develop
their own independent estimates of losses for loans, trading assets,
counterparty credit risk, and securities and PPNR for each BHC.
* In the third phase, the Capital Assessment Group, comprising
interagency staff, served as the informal decision-making body for
SCAP. The Capital Assessment Group developed a framework for combing
the Supervisory Analytical and Advisory Teams' estimates with other
independent supervisory estimates of loan losses and resources
available to absorb these losses.[Footnote 23] They evaluated the
estimates by comparing across BHCs and by aggregating over the 19 BHCs
to check for consistency with the specified macroeconomic scenarios to
calculate the amount, if any, of additional capital needed for each
BHC to achieve the SCAP buffer target capital ratios as of December
31, 2010, in the more adverse economic environment. Lastly, the
Capital Assessment Group set two deadlines: (1) June 8, 2009, for BHCs
requiring capital to develop and submit a capital plan to the Federal
Reserve on how they would meet their SCAP capital shortfall and (2)
November 9, 2009, for these BHCs to raise the required capital.
A key component of this process was the involvement of
multidisciplinary interagency teams that leveraged the skills and
experiences of staff from different disciplines and agencies. The
Federal Reserve, OCC, and FDIC had representatives on each SCAP team
(the Analytical Group, Supervisory Analytical and Advisory Teams, and
the Capital Assessment Group). For example, OCC officials said that
they contributed to the development of quantitative models required
for the implementation of SCAP and offered their own models for use in
assessing the loss rates of certain portfolios. In addition, each of
the SCAP regulators tapped expertise within their organization for
specific disciplines, such as accounting, custodial banking,
macroeconomics, commercial and industry loan loss modeling, and
consumer risk modeling. According to the FDIC, the broad involvement
of experts from across the agencies helped validate loss assumptions
and also helped improve confidence in the results. Further, these
officials noted that the SCAP process was enhanced because productive
debate became a common event as team members from different regulatory
agencies and disciplines brought their own perspectives and ideas to
the process. For example, some SCAP staff argued for a more moderate
treatment of securities in BHCs' available for sale portfolios, which
would have been consistent with generally accepted accounting
principles under a new change in accounting standards.[Footnote 24]
They maintained that the modified accounting standard for declines in
market value (and discounting the impact of liquidity premia) that had
been implemented after the stress test was announced and before the
numbers had been finalized was in some ways more reflective of the
realized credit loss expectations for the affected securities. After
significant discussion, the regulators decided to allow for the
accounting change in the baseline loss estimates, but not in the more
adverse scenario estimates. They believed that under the more adverse
scenario there was a heightened possibility of increased liquidity
demands on banks and that many distressed securities would need to be
liquidated at distressed levels. Consequently, for securities found to
be other than temporarily impaired in the more adverse scenario, they
assumed the firm would have to realize all unrealized losses (i.e.,
write down the value of the security to market value as of year end
2008).[Footnote 25] Similarly, some staff argued against adopting
other changes in accounting standards that were expected to impact
BHCs' balance sheets, including their capital adequacy. Primary among
these was the inclusion of previously off-balance sheet items.
[Footnote 26] As noted above, ultimately, the more conservative
approach prevailed and the expected inclusion of these assets was
addressed in SCAP.
To facilitate coordination, the Federal Reserve instituted a voting
system to resolve any contentious issues, but in practice differences
among regulators were generally resolved through consensus. When SCAP
regulators met, the Federal Reserve led the discussions and solicited
input from other regulators. For example, officials from OCC and FDIC
both told us that they felt that they were adequately involved in
tailoring the aggregate loss estimates to each BHC as part of the
determination of each BHC's SCAP capital requirement. SCAP regulators
were also involved in drafting the design and results documents, which
were publicly released by the Federal Reserve.
Representatives from most of the BHCs were satisfied with the SCAP
regulators' coordination and communication. Many of the BHC officials
stated that they were generally impressed with the onsite SCAP teams
and said that these teams improved the BHCs' coordination and
communication with the regulators. BHC officials said that they
usually received answers to their questions in a timely manner, either
during conference calls held three times a week, through the
distribution of answers to frequently asked questions, or from onsite
SCAP examiners. Collecting and aggregating data were among the most
difficult and time-consuming tasks for BHCs, but most of them stated
that the nature of the SCAP's requests were clear. At the conclusion
of SCAP, the regulators presented the results to each of the
institutions showing the final numbers that they planned to publish.
Market Participants Generally Agreed that the SCAP Process Was
Transparent:
The SCAP process included steps to promote transparency, such as the
release of key program information to SCAP BHCs and the public.
According to SCAP regulators, BHCs, and credit rating agency officials
we interviewed, the release of the results provided specific
information on the financial health and viability of the 19 largest
BHCs regarding their ability to withstand additional losses during a
time of significant uncertainty. Many experts have said that the lack
of transparency about potential losses from certain assets contributed
significantly to the instability in financial markets during the
current crisis. Such officials also stated that publicly releasing the
methodology and results of the stress test helped strengthen market
confidence. Further, many market observers have commented that the
Federal Reserve's unprecedented disclosure of sensitive supervisory
information for each BHC helped European bank regulators decide to
publicly release detailed results of their own stress tests in July
2010.
Not all SCAP participants agreed that the SCAP process was fully
transparent. For example, some participants questioned the
transparency of certain assumptions used in developing the stress
test. According to BHC officials and one regulator, the Federal
Reserve could have shared more detailed information about SCAP loss
assumptions and calculations with BHCs.[Footnote 27] According to
several BHC officials, the Federal Reserve did not fully explain the
methodology for estimating losses but expected BHC officials to fully
document and provide supporting data for all of their assumptions.
Without knowing the details of the methodology, according to some BHC
officials, they could not efficiently provide all relevant information
to SCAP examiners.
SCAP Was Designed to Help Ensure That BHCs Were Adequately Capitalized
Under the More Adverse Economic Scenario:
SCAP regulators aimed to ensure that SCAP sufficiently stressed BHCs'
risk exposures and potential PPNR under the more adverse scenario. To
accomplish this, the regulators made what they viewed to be
conservative assumptions and decisions in the following areas. First,
the regulators decided to stress only assets that were on the BHCs'
balance sheets as of December 31, 2008, (i.e., a static approach)
without accounting for new business activity. According to BHC
officials, new loans were thought to have generally been of better
quality than legacy loans because BHCs had significantly tightened
their underwriting standards since the onset of the financial crisis.
[Footnote 28] As a result, BHCs would have been less likely to charge-
off these loans within the SCAP time period ending December 31, 2010,
resulting in the potential for greater reported revenue estimates for
the period. By excluding earnings from new business, risk-weighted
assets were understated, charge-off rates were overstated, and
projected capital levels were understated.
Second, SCAP regulators generally did not allow the BHCs to cut
expenses to address the anticipated drop in revenues under the more
adverse scenario. However, some BHC officials told us that they would
likely cut expenses, including initiating rounds of layoffs, if the
economy performed in accordance with the more adverse economic
scenario, especially if they were not generating any new business.
Federal Reserve officials noted that BHCs were given credit in the
stress test for cost cuts made in the first quarter of 2009.
Third, some BHCs were required to assume an increase in their ALLL as
of the end of 2010, if necessary, to ensure adequate reserves relative
to their year end 2010 portfolio. Some BHC officials believed that
this requirement resulted in the BHCs having to raise additional
capital because the required ALLL increases were subtracted from the
revenue estimates in calculating the resources available to absorb
losses. This meant that some BHCs judged to have insufficient year end
2010 reserve adequacy had to account for this shortcoming in the
calculation of capital needed to meet the SCAP targeted capital
requirements as of the end of 2010 while maintaining a sufficient ALLL
for 2011 losses under the more adverse economic scenario. According to
some BHCs, the size of the 2010 ALLL was severe given the extent of
losses are already included in the 2009 and 2010 loss estimates and
effectively stressed BHCs for a third year.
Finally, according to many BHC officials and others, the calculations
used to derive the loan loss rates and other assumptions to stress the
BHCs were conservative (i.e., more severe). For example, the total
loan loss rate estimated by the SCAP regulators was 9.1 percent, which
was greater than the historical 2-year loan loss rates at all
commercial banks from 1921 until 2008, including the worst levels seen
during the Great Depression (see figure 2). However, the macroeconomic
assumptions of the more adverse scenario, which we will discuss later
in the report, did not meet the definition of a depression.
Specifically, a 25 percent unemployment rate coupled with economic
contraction is indicative of a depression. In contrast, the more
adverse scenario estimated approximately a 10 percent unemployment
rate with some economic growth in late 2010.
Figure 2: Commercial Bank 2-Year Loan Loss Rates from 1921 through
2013 Compared to SCAP Loan Loss Rate:
[Refer to PDF for image: line graph]
SCAP total loan loss rate = 9.1%.
Year: 1921;
SCAP Loan loss rate: 1.68%.
Year: 1922;
SCAP Loan loss rate: 1.43%.
Year: 1923;
SCAP Loan loss rate: 1.36%.
Year: 1924;
SCAP Loan loss rate: 1.54%.
Year: 1925;
SCAP Loan loss rate: 1.75%.
Year: 1926;
SCAP Loan loss rate: 1.44%.
Year: 1927;
SCAP Loan loss rate: 1.16%.
Year: 1928;
SCAP Loan loss rate: 0.9%.
Year: 1929;
SCAP Loan loss rate: 0.72%.
Year: 1930;
SCAP Loan loss rate: 1.16v
Year: 1931;
SCAP Loan loss rate: 3.32%.
Year: 1932;
SCAP Loan loss rate: 6.16%.
Year: 1933;
SCAP Loan loss rate: 8.75%.
Year: 1934;
SCAP Loan loss rate: 8.57%.
Year: 1935;
SCAP Loan loss rate: 5.03%.
Year: 1936;
SCAP Loan loss rate: 2.48%.
Year: 1937;
SCAP Loan loss rate: 1.18%.
Year: 1938;
SCAP Loan loss rate: 0.89%.
Year: 1939;
SCAP Loan loss rate: 1%.
Year: 1940;
SCAP Loan loss rate: 0.68%.
Year: 1941;
SCAP Loan loss rate: 0.41%.
Year: 1942;
SCAP Loan loss rate: 0.21%.
Year: 1943;
SCAP Loan loss rate: 0%.
Year: 1944;
SCAP Loan loss rate: -0.13%.
Year: 1945;
SCAP Loan loss rate: -0.11%.
Year: 1946;
SCAP Loan loss rate: -0.05%.
Year: 1947;
SCAP Loan loss rate: 0.13%.
Year: 1948;
SCAP Loan loss rate: 0.21%.
Year: 1949;
SCAP Loan loss rate: 0.21%.
Year: 1950;
SCAP Loan loss rate: 0.2%.
Year: 1951;
SCAP Loan loss rate: 0.12%.
Year: 1952;
SCAP Loan loss rate: 0.11%.
Year: 1953;
SCAP Loan loss rate: 0.14%.
Year: 1954;
SCAP Loan loss rate: 0.15%.
Year: 1955;
SCAP Loan loss rate: 0.12%.
Year: 1956;
SCAP Loan loss rate: 0.16%.
Year: 1957;
SCAP Loan loss rate: 0.18%.
Year: 1958;
SCAP Loan loss rate: 0.14%.
Year: 1959;
SCAP Loan loss rate: 0.11%.
Year: 1960;
SCAP Loan loss rate: 0.23%.
Year: 1961;
SCAP Loan loss rate: 0.33%.
Year: 1962;
SCAP Loan loss rate: 0.27%.
Year: 1963;
SCAP Loan loss rate: 0.27%.
Year: 1964;
SCAP Loan loss rate: 0.29%.
Year: 1965;
SCAP Loan loss rate: 0.3%.
Year: 1966;
SCAP Loan loss rate: 0.35%.
Year: 1967;
SCAP Loan loss rate: 0.38%.
Year: 1968;
SCAP Loan loss rate: 0.35%.
Year: 1969;
SCAP Loan loss rate: 0.33%.
Year: 1970;
SCAP Loan loss rate: 0.51%.
Year: 1971;
SCAP Loan loss rate: 0.68%.
Year: 1974;
SCAP Loan loss rate: 0.57%.
Year: 1973;
SCAP Loan loss rate: 0.49%.
Year: 1974;
SCAP Loan loss rate: 0.6%.
Year: 1975;
SCAP Loan loss rate: 0.9%.
Year: 1976;
SCAP Loan loss rate: 1.12%.
Year: 1977;
SCAP Loan loss rate: 0.95%.
Year: 1978;
SCAP Loan loss rate: 0.69%.
Year: 1979;
SCAP Loan loss rate: 0.57%.
Year: 1980;
SCAP Loan loss rate: 0.63%.
Year: 1981;
SCAP Loan loss rate: 0.69%.
Year: 1982;
SCAP Loan loss rate: 0.87%.
Year: 1983;
SCAP Loan loss rate: 1.19%.
Year: 1984;
SCAP Loan loss rate: 1.3%.
Year: 1985;
SCAP Loan loss rate: 1.47%.
Year: 1986;
SCAP Loan loss rate: 1.78v
Year: 1987;
SCAP Loan loss rate: 1.88%.
Year: 1988;
SCAP Loan loss rate: 1.91%.
Year: 1989;
SCAP Loan loss rate: 2.13%.
Year: 1990;
SCAP Loan loss rate: 2.59%.
Year: 1991;
SCAP Loan loss rate: 2.91%.
Year: 1992;
SCAP Loan loss rate: 2.59%.
Year: 1993;
SCAP Loan loss rate: 1.78%.
Year: 1994;
SCAP Loan loss rate: 1.09%.
Year: 1995;
SCAP Loan loss rate: 0.95%.
Year: 1996;
SCAP Loan loss rate: 1.03%.
Year: 1997;
SCAP Loan loss rate: 1.13%.
Year: 1998;
SCAP Loan loss rate: 1.24%.
Year: 1999;
SCAP Loan loss rate: 1.27%.
Year: 2000;
SCAP Loan loss rate: 1.53%.
Year: 2001;
SCAP Loan loss rate: 2.22%.
Year: 2002;
SCAP Loan loss rate: 2.41%.
Year: 2003;
SCAP Loan loss rate: 2.01%.
Year: 2004;
SCAP Loan loss rate: 1.55%.
Year: 2005;
SCAP Loan loss rate: 1.25%.
Year: 2006;
SCAP Loan loss rate: 1.17%.
Year: 2007;
SCAP Loan loss rate: 1.40%.
Year: 2008;
SCAP Loan loss rate: 2.87%.
Year: 2009;
SCAP Loan loss rate: 5.66% (estimated).
Year: 2010;
SCAP Loan loss rate: 7.74% (estimated).
Year: 2011;
SCAP Loan loss rate: 7.37% (estimated).
Year: 2012;
SCAP Loan loss rate: 5.97% (estimated).
Year: 2013;
SCAP Loan loss rate: 4.75% (estimated).
Source: International Monetary Fund.
[End of figure]
SCAP regulators also estimated ranges for loan loss rates within
specific loan categories using the baseline and more adverse scenarios
as guides. They used a variety of methods to tailor loan losses to
each BHC, including an analysis of past BHC losses and quantitative
models, and sought empirical support from BHCs regarding the risk
level of their portfolios. However, some BHCs told us that the Federal
Reserve made substantial efforts to help ensure conformity with the
indicative loan loss rates while incorporating BHC-specific
information where possible and reliable. Table 1 compares the
different indicative loan loss rate ranges under the more adverse
scenario for each asset category with actual losses in 2009 for SCAP
BHCs and the banking industry.[Footnote 29] Some BHCs stated that the
resulting loan loss rates were indicative of an economy worse off than
that represented by the more adverse macroeconomic assumptions,
although they recognized the need for the more conservative approach.
However, nearly all agreed that the loan loss rates were a more
important indication of the stringency of SCAP than the assumptions.
Table 1: Indicative Loss Rates Estimates and Actual SCAP BHCs and
Banking Industry Average Loss Rates, December 31, 2009:
Loan category: First-lien mortgage;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 7-8.5%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 3.5-4.25%;
2009 actual loss rates: SCAP BHCs average loss rate: 1.9%;
2009 actual loss rates: Banking industry average loss rate[C]: 1.7%.
Loan category: First-lien mortgage; Prime;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 3-4%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 1.5-2%;
2009 actual loss rates: SCAP BHCs average loss rate: n/a;
2009 actual loss rates: Banking industry average loss rate[C]: 0.5%.
Loan category: First-lien mortgage; Alt-A;
[Empty];
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 9.5-13%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 4.75-6.5%;
2009 actual loss rates: SCAP BHCs average loss rate: n/a;
2009 actual loss rates: Banking industry average loss rate[C]: 3.6%.
Loan category: First-lien mortgage; Subprime;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 21-28%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 10.5-14%;
2009 actual loss rates: SCAP BHCs average loss rate: n/a;
2009 actual loss rates: Banking industry average loss rate[C]: 6.2%.
Loan category: Second/junior lien mortgages;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 12-16%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 6-8%;
2009 actual loss rates: SCAP BHCs average loss rate: 4.4%;
2009 actual loss rates: Banking industry average loss rate[C]: 3.9%.
Loan category: Second/junior lien mortgages; Closed-end junior liens;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 22-25%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 11-12.5%;
2009 actual loss rates: SCAP BHCs average loss rate: 7.5%;
2009 actual loss rates: Banking industry average loss rate[C]: 6.6%.
Loan category: Second/junior lien mortgages; Home lines of credit;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 8-11%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 4-5.5%;
2009 actual loss rates: SCAP BHCs average loss rate: 3.6%;
2009 actual loss rates: Banking industry average loss rate[C]: 3.1%.
Loan category: Commercial and industrial;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 5-8%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 2.5-4%;
2009 actual loss rates: SCAP BHCs average loss rate: 2.5%;
2009 actual loss rates: Banking industry average loss rate[C]: 2.3%.
Loan category: Commercial real estate;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 9-12%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 4.5-6%;
2009 actual loss rates: SCAP BHCs average loss rate: 2.3%;
2009 actual loss rates: Banking industry average loss rate[C]: 2.4%.
Loan category: Commercial real estate; Construction;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 15-18%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 7.5-9%;
2009 actual loss rates: SCAP BHCs average loss rate: 5.8%;
2009 actual loss rates: Banking industry average loss rate[C]: 6.1%.
Loan category: Commercial real estate; Multifamily;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 10-11%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 5-5.5%;
2009 actual loss rates: SCAP BHCs average loss rate: 1.1%;
2009 actual loss rates: Banking industry average loss rate[C]: 1.1%.
Loan category: Commercial real estate; Nonfarm, nonresidential;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 7-9%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 3.5-4.5%;
2009 actual loss rates: SCAP BHCs average loss rate: 0.9%;
2009 actual loss rates: Banking industry average loss rate[C]: 0.8%.
Loan category: Credit cards;
[Empty];
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 18-20%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 9-10%;
2009 actual loss rates: SCAP BHCs average loss rate: 10.1%;
2009 actual loss rates: Banking industry average loss rate[C]: 10.2%.
Loan category: Other consumer;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 8-12%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 4-6%;
2009 actual loss rates: SCAP BHCs average loss rate: 4.1%;
2009 actual loss rates: Banking industry average loss rate[C]: 4.4%.
Loan category: Other loans;
SCAP indicative loss rate estimates: Federal Reserve's more adverse 2-
year loss rate[A]: 4-10%;
SCAP indicative loss rate estimates: GAO's more adverse 1-year pro
rata loss rate[B]: 2-5%;
[Empty];
2009 actual loss rates: SCAP BHCs average loss rate: 1.4%;
2009 actual loss rates: Banking industry average loss rate[C]: 1.1%.
Sources: Federal Reserve SCAP results report, GAO analysis of SNL
Financial Y-9C regulatory data, and Moody's Investors Service for
prime, Alt-A, and subprime mortgage loss rates data.
Note: n/a means not available.
[A] Data as of December 31, 2010.
[B] GAO calculated the more adverse 1-year pro rata loss rate by
dividing the SCAP more adverse 2-year loss rates by 2 (i.e., the
straight-line method). A key limitation of this approach is that it
assumes equal distribution of losses, revenues, expenses, and changes
to reserves over time, although these items were unlikely to be
distributed evenly over the 2-year period. Another important
consideration is that actual results were not intended and should not
be expected to align with the SCAP projections.
[C] Data are for BHCs with greater than $1 billion in total assets.
[End of table]
After the public release of the SCAP methodology in April 2009, many
observers commented that the macroeconomic assumptions for a more
adverse economic downturn were not severe enough given the economic
conditions at that time. In defining a more adverse economic scenario,
the SCAP regulators made assumptions about the path of the economy
using three broad macroeconomic indicators--changes in real GDP, the
unemployment rate, and home prices--during the 2-year SCAP period
ending December 2010. The actual performances of GDP and home prices
have performed better than assumed under the more adverse scenario.
However, the actual unemployment rate has more closely tracked the
more adverse scenario (see figure 3). Further, as noted earlier, some
regulatory and BHC officials have indicated that the loan loss rates
that the regulators subsequently developed were more severe than one
would have expected under the macroeconomic assumptions. While our
analysis of actual and SCAP estimated indicative loan losses (see
table 1) is generally consistent with this view, these estimates were
developed at a time of significant uncertainty about the direction of
the economy and the financial markets, as well as an unprecedented
deterioration in the U.S. housing markets.
Figure 3: Actual Economic Performance to Date Versus SCAP More Adverse
Assumptions:
[Refer to PDF for image: 3 multiple line graphs]
GDP actual vs. SCAP adverse:
Year and quarter: 2008, Q4;
SCAP more adverse: -0.2%;
Actual: -5.4%.
Year and quarter: 2009, Q1;
SCAP more adverse: -2.1%;
Actual: -6.4%.
Year and quarter: 2009, Q2;
SCAP more adverse: -3.8%;
Actual: -0.7%.
Year and quarter: 2009, Q3;
SCAP more adverse: -3.7%;
Actual: 2.2%.
Year and quarter: 2009, Q4;
SCAP more adverse: -2.7%;
Actual: 5.6%.
Year and quarter: 2010, Q1;
SCAP more adverse: -0.9%;
Actual: 3.2%.
Year and quarter: 2010, Q2;
SCAP more adverse: 0.4%.
Year and quarter: 2010, Q3;
SCAP more adverse: 1%.
Year and quarter: 2010, Q4;
SCAP more adverse: 1.5%.
Unemployment actual vs. SCAP adverse:
Year and quarter: 2008, Q4;
SCAP more adverse: 6.9%;
Actual: 7.4%.
Year and quarter: 2009, Q1;
SCAP more adverse: 7.9%;
Actual: 8.6%.
Year and quarter: 2009, Q2;
SCAP more adverse: 8.8%;
Actual: 9.5%.
Year and quarter: 2009, Q3;
SCAP more adverse: 9.3%;
Actual: 9.8%.
Year and quarter: 2009, Q4;
SCAP more adverse: 9.7%;
Actual: 10.0%.
Year and quarter: 2010, Q1;
SCAP more adverse: 9.7%;
Actual: 9.7%.
Year and quarter: 2010, Q2;
SCAP more adverse: 10%.
Year and quarter: 2010, Q3;
SCAP more adverse: 10.3%.
Year and quarter: 2010, Q4;
SCAP more adverse: 10.4%.
Home price actual vs. SCAP adverse:
Year and quarter: 2008, Q4;
SCAP more adverse: 100%;
Actual: 100%.
Year and quarter: 2009, Q1;
SCAP more adverse: 92.4%;
Actual: 93.5%.
Year and quarter: 2009, Q2;
SCAP more adverse: 87%;
Actual: 94.6%.
Year and quarter: 2009, Q3;
SCAP more adverse: 82.7%;
Actual: 98%.
Year and quarter: 2009, Q4;
SCAP more adverse: 79.3%;
Actual: 97.6%.
Year and quarter: 2010, Q1;
SCAP more adverse: 76.7%.
Year and quarter: 2010, Q2;
SCAP more adverse: 74.7%.
Year and quarter: 2010, Q3;
SCAP more adverse: 73.3%.
Year and quarter: 2010, Q4;
SCAP more adverse: 72.5%.
Source: GAO analysis of Bureau of Economic Analysis, Bureau of Labor
Statistics, and Standard and Poor's 10-City Case-Shiller data.
[End of figure]
While SCAP Increased Capital Levels and Improved Confidence in the
Banking System, BHCs Could Face Ongoing Challenges:
SCAP largely met its goals of increasing the level and quality of
capital held by the 19 largest BHCs and, more broadly, of
strengthening market confidence in the banking system. The stress test
identified 10 of the 19 BHCs as needing to raise a total of about $75
billion in additional capital. The Federal Reserve encouraged the BHCs
to raise common equity via private sources--for example, through new
common equity issuances, conversion of existing preferred equity to
common equity, and sales of businesses or portfolios of assets. Nine
of the 10 BHCs were able to raise the required SCAP amount of new
common equity in the private markets by the November 9, 2009, deadline
(see table 2). Some of these BHCs also raised capital internally from
other sources.[Footnote 30] GMAC LLC (GMAC) was the only BHC that was
not able to raise sufficient private capital by the November 9, 2009,
deadline.[Footnote 31] On December 30, 2009, Treasury provided GMAC
with a capital investment of $3.8 billion to help fulfill its SCAP
capital buffer requirement, drawing funds from TARP's Automotive
Industry Financing Program.[Footnote 32] A unique and additional
element of the estimated losses for GMAC included the unknown impact
of possible bankruptcy filings by General Motors Corporation (GM) and
Chrysler LLC (Chrysler). Thus, a conservative estimate of GMAC's
capital buffer was developed in response to this possibility. The
Federal Reserve, in consultation with Treasury, subsequently reduced
GMAC's SCAP required capital buffer by $1.8 billion--$5.6 billion to
$3.8 billion--primarily to reflect the lower-than-estimated actual
losses from the bankruptcy proceedings of GM and Chrysler. GMAC was
the only company to have its original capital buffer requirement
reduced.
Table 2: Summary of Capital Raised by 10 BHCs to Meet Their SCAP
Capital Buffer Amount, as of November 9, 2009:
BHC: Bank of America Corporation;
Sources of capital raised: New shares, asset sales, and conversion[A];
Required capital buffer amount: $33.9 billion;
Capital raised: $35.9 billion.
BHC: Citigroup Inc.;
Sources of capital raised: Conversion;
Required capital buffer amount: $5.5 billion;
Capital raised: $5.6 billion.
BHC: Fifth Third Bancorp;
Sources of capital raised: New shares, asset sales, and conversion;
Required capital buffer amount: $1.1 billion;
Capital raised: $1.7 billion.
BHC: GMAC LLC;
Sources of capital raised: New shares;
Required capital buffer amount: $11.5 billion;
Capital raised: $4.6 billion.
BHC: KeyCorp;
Sources of capital raised: New shares, asset sales, and conversion;
Required capital buffer amount: $1.8 billion;
Capital raised: $2.3 billion.
BHC: Morgan Stanley;
Sources of capital raised: New shares, asset sales, and conversion;
Required capital buffer amount: $1.8 billion;
Capital raised: $7.0 billion.
BHC: PNC Financial Services Group, Inc.;
Sources of capital raised: New shares and asset sales;
Required capital buffer amount: $0.6 billion;
Capital raised: $1.1 billion.
BHC: Regions Financial Corporation;
Sources of capital raised: New shares, asset sales, conversion, and
other actions[B];
Required capital buffer amount: $2.5 billion;
Capital raised: $2.5 billion.
BHC: SunTrust Banks, Inc.;
Sources of capital raised: New shares, asset sales, conversion, and
other actions;
Required capital buffer amount: $2.2 billion;
Capital raised: $2.2 billion.
BHC: Wells Fargo & Company;
Sources of capital raised: New shares and other actions;
Required capital buffer amount: $13.7 billion;
Capital raised: $13.7 billion.
BHC: Total;
Required capital buffer amount: $74.6 billion;
Capital raised: $76.6 billion.
Source: Federal Reserve documentation.
Notes: The following nine BHCs were not required to raise SCAP capital
because they had sufficient capital to withstand a worse-than-expected
economic downturn through the end of 2010 and continue to meet the
SCAP capital buffer targets: American Express Company; BB&T
Corporation; The Bank of New York Mellon Corporation; Capital One
Financial Corporation; The Goldman Sachs Group, Inc.; JPMorgan Chase &
Co.; MetLife, Inc.; State Street Corporation; and U.S. Bancorp. Data
in the "capital raised" column is as of November 9, 2009, according to
the Federal Reserve.
[A] "New shares" indicates that BHC issued new common equity, "assets
sales" represent business lines or products sold to raise cash, and
"conversion" shows BHC preferred equity that was converted to common
equity.
[B] "Other action" indicates equity raised internally (e.g., sale of
equity to employee stock options plans).
[End of table]
Capital adequacy generally improved across all 19 SCAP BHCs during
2009. As shown in table 3, the largest gains were in tier 1 common
capital, which increased by about 51 percent in the aggregate across
the 19 BHCs, rising from $412.5 billion on December 31, 2008, to
$621.9 billion by December 31, 2009. On an aggregate basis, the tier 1
common capital ratio at BHCs increased from 5.3 percent to 8.3 percent
of risk-weighted assets (compared with the SCAP threshold of 4 percent
at the end of 2010).[Footnote 33] The tier 1 risk-based capital ratio
also grew from 10.7 percent to 11.3 percent of risk-weighted assets
(compared with the SCAP threshold of 6 percent at the end of 2010).
[Footnote 34] While these ratios were helped to some extent by
reductions in risk-weighted assets, which fell 4.3 percent from $7.815
trillion on December 31, 2008, to $7.481 trillion on December 31,
2009, the primary driver of the increases was the increase in total
tier 1 common capital.
Table 3: Capital Measures for SCAP BHCs, December 31, 2008 and
December 31, 2009:
Capital measures: Capital levels; Tier 1 capital;
2009: $846.2 billion;
2008: $836.7 billion;
Percent difference: 1.1%.
Capital measures: Capital levels; Tier 1 common capital;
2009: $621.9 billion;
2008: $412.5 billion;
Percent difference: 50.8%.
Capital measures: Capital levels; Risk-weighted assets;
2009: $7.48 trillion;
2008: $7.81 trillion;
Percent difference: -4.3%.
Capital measures: Capital ratios; Tier 1 risk-based capital ratio;
2009: 11.3%;
2008: 10.7%;
Percent difference: 5.6%.
Capital measures: Capital ratios; Tier 1 common capital ratio;
2009: 8.3%;
2008: 5.3%;
Percent difference: 57.5%.
Sources: GAO analysis of Federal Reserve SCAP, SNL Financial, and
company data.
[End of table]
The quality of capital--measured as that portion of capital made up of
tier 1 common equity--also increased across most of the BHCs in 2009.
The tier 1 common capital ratio increased at 17 of the 19 BHCs between
the end of 2008 and the end of 2009 (see table 4). Citigroup Inc.
(Citigroup) and The Goldman Sachs Group, Inc. (Goldman Sachs) had the
largest increases in tier 1 common capital ratios--747 and 450 basis
points, respectively.[Footnote 35] However, GMAC's tier 1 common
capital ratio declined by 155 basis points in this period to 4.85
percent. MetLife, Inc. was the only other BHC to see a drop in its
tier 1 common capital ratio, which fell by 33 basis points to 8.17
percent and still more than double the 4 percent target. Based on the
SCAP results document, the 2008 balances in the table include the
impact of certain mergers and acquisitions, such as Bank of America
Corporation's (Bank of America) purchase of Merrill Lynch & Co. Inc.
Further, the increase in capital levels reflects the capital that was
raised as a result of SCAP.
Table 4: Percentage Change in Tier I Capital Ratios, December 31,
2008, and December 31, 2009:
Bank holding company: American Express Company;
Tier 1 common capital ratio: 2009 (percentage): 9.83%;
Tier 1 common capital ratio: Change from 2008 (basis points): 13;
Tier 1 risk-based capital ratio: 2009 (percentage): 9.84%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 14.
Bank holding company: Bank of America Corporation;
Tier 1 common capital ratio: 2009 (percentage): 7.82%;
Tier 1 common capital ratio: Change from 2008 (basis points): 322;
Tier 1 risk-based capital ratio: 2009 (percentage): 10.41%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -19.
Bank holding company: BB&T Corporation;
Tier 1 common capital ratio: 2009 (percentage): 8.50%;
Tier 1 common capital ratio: Change from 2008 (basis points): 140;
Tier 1 risk-based capital ratio: 2009 (percentage): 11.48%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -82.
Bank holding company: The Bank of New York Mellon Corporation;
Tier 1 common capital ratio: 2009 (percentage): 10.53%;
Tier 1 common capital ratio: Change from 2008 (basis points): 103;
Tier 1 risk-based capital ratio: 2009 (percentage): 12.12%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -118.
Bank holding company: Capital One Financial Corporation;
Tier 1 common capital ratio: 2009 (percentage): 10.62%;
Tier 1 common capital ratio: Change from 2008 (basis points): 152;
Tier 1 risk-based capital ratio: 2009 (percentage): 13.75%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 105.
Bank holding company: Citigroup Inc.;
Tier 1 common capital ratio: 2009 (percentage): 9.77%;
Tier 1 common capital ratio: Change from 2008 (basis points): 747;
Tier 1 risk-based capital ratio: 2009 (percentage): 11.67%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -23.
Bank holding company: Fifth Third Bancorp;
Tier 1 common capital ratio: 2009 (percentage): 7.00%;
Tier 1 common capital ratio: Change from 2008 (basis points): 260;
Tier 1 risk-based capital ratio: 2009 (percentage): 13.31%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 271.
Bank holding company: GMAC LLC;
Tier 1 common capital ratio: 2009 (percentage): 4.85%;
Tier 1 common capital ratio: Change from 2008 (basis points): -155;
Tier 1 risk-based capital ratio: 2009 (percentage): 14.15%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 405.
Bank holding company: The Goldman Sachs Group, Inc.;
Tier 1 common capital ratio: 2009 (percentage): 12.20%;
Tier 1 common capital ratio: Change from 2008 (basis points): 450;
Tier 1 risk-based capital ratio: 2009 (percentage): 14.97%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 237.
Bank holding company: JPMorgan Chase & Co.;
Tier 1 common capital ratio: 2009 (percentage): 8.79%;
Tier 1 common capital ratio: Change from 2008 (basis points): 229;
Tier 1 risk-based capital ratio: 2009 (percentage): 11.10%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 90.
Bank holding company: KeyCorp;
Tier 1 common capital ratio: 2009 (percentage): 7.50%;
Tier 1 common capital ratio: Change from 2008 (basis points): 190;
Tier 1 risk-based capital ratio: 2009 (percentage): 12.75%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 185.
Bank holding company: MetLife, Inc.;
Tier 1 common capital ratio: 2009 (percentage): 8.17%;
Tier 1 common capital ratio: Change from 2008 (basis points): -33;
Tier 1 risk-based capital ratio: 2009 (percentage): 8.91%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -29.
Bank holding company: Morgan Stanley;
Tier 1 common capital ratio: 2009 (percentage): 6.71%;
Tier 1 common capital ratio: Change from 2008 (basis points): 101;
Tier 1 risk-based capital ratio: 2009 (percentage): 15.30%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 10.
Bank holding company: PNC Financial Services Group, Inc.;
Tier 1 common capital ratio: 2009 (percentage): 6.00%;
Tier 1 common capital ratio: Change from 2008 (basis points): 130;
Tier 1 risk-based capital ratio: 2009 (percentage): 11.42%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 182.
Bank holding company: Regions Financial Corporation;
Tier 1 common capital ratio: 2009 (percentage): 7.15%;
Tier 1 common capital ratio: Change from 2008 (basis points): 55;
Tier 1 risk-based capital ratio: 2009 (percentage): 11.54%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 114.
Bank holding company: State Street Corporation;
Tier 1 common capital ratio: 2009 (percentage): 15.59%;
Tier 1 common capital ratio: Change from 2008 (basis points): 9;
Tier 1 risk-based capital ratio: 2009 (percentage): 17.74%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -246.
Bank holding company: SunTrust Banks, Inc.;
Tier 1 common capital ratio: 2009 (percentage): 7.67%;
Tier 1 common capital ratio: Change from 2008 (basis points): 187;
Tier 1 risk-based capital ratio: 2009 (percentage): 12.96%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 206.
Bank holding company: U.S. Bancorp;
Tier 1 common capital ratio: 2009 (percentage): 6.76%;
Tier 1 common capital ratio: Change from 2008 (basis points): 166;
Tier 1 risk-based capital ratio: 2009 (percentage): 9.61v;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): -99.
Bank holding company: Wells Fargo & Company;
Tier 1 common capital ratio: 2009 (percentage): 6.46%;
Tier 1 common capital ratio: Change from 2008 (basis points): 336;
Tier 1 risk-based capital ratio: 2009 (percentage): 9.25%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 125.
Bank holding company: Average (weighted);
Tier 1 common capital ratio: 2009 (percentage): 8.31%;
Tier 1 risk-based capital ratio: 2009 (percentage): 11.31%;
Tier 1 risk-based capital ratio: Change from 2008 (basis points): 60.
Sources: GAO analysis of Federal Reserve SCAP, SNL Financial, and
company data.
[End of table]
As previously stated by interviewees, the unprecedented public release
of the stress test results helped to restore investors' confidence in
the financial markets. Some officials from participating BHCs and
credit rating agencies also viewed the BHCs' ability to raise the
capital required by the stress test as further evidence of SCAP's
success in increasing market confidence and reducing uncertainty. But
some expressed concerns that the timing of the announcement of SCAP on
February 10, 2009--nearly 3 months before the results were released on
May 7, 2009--may have intensified market uncertainty about the
financial health of the BHCs.
A broad set of market indicators also suggest that the public release
of SCAP results may have helped reduce uncertainty in the financial
markets and increased market confidence. For example, banks' renewed
ability to raise private capital reflects improvements in perceptions
of the financial condition of banks. Specifically, banks and thrifts
raised significant amounts of common equity in 2008, totaling $56
billion. Banks and thrifts raised $63 billion in common equity in the
second quarter of 2009 (see figure 4). The substantial increase in
second quarter issuance of common equity occurred after the stress
test results were released on May 7, 2009, and was dominated by
several SCAP institutions.
Figure 4: Gross Common Equity Issuance by Banks and Thrifts, 2000 to
First Quarter 2010:
[Refer to PDF for image: vertical bar graph]
Year: 2000;
Gross Common Equity Issuance: $1.4 billion.
Year: 2001;
Gross Common Equity Issuance: $2 billion.
Year: 2002;
Gross Common Equity Issuance: $2.5 billion.
Year: 2003;
Gross Common Equity Issuance: $6 billion.
Year: 2004;
Gross Common Equity Issuance: $6.1 billion.
Year: 2005;
Gross Common Equity Issuance: $9.7 billion.
Year: 2006;
Gross Common Equity Issuance: $3.9 billion.
Year: 2007;
Gross Common Equity Issuance: $9 billion.
Q1: $1.3 billion (22 banks raised capital);
Q2: $5 billion (18 banks raised capital);
Q3: $1.2 billion (19 banks raised capital);
Q4: $1.4 billion (27 banks raised capital).
Year: 2008;
Gross Common Equity Issuance: $56 billion;
Q1: $0.6 billion (19 banks raised capital);
Q2: $18.7 billion (31 banks raised capital);
Q3: $13.2 billion (22 banks raised capital);
Q4: $23.5 billion (30 banks raised capital).
Year: 2009;
Gross Common Equity Issuance: $107.4 billion;
Q1: $0.2 billion (15 banks raised capital);
Q2: $62.9 billion (51 banks raised capital);
Q3: $6.8 billion (56 banks raised capital);
Q4: $37.5 billion (55 banks raised capital).
Year: 2010;
Q1: $9.6 billion (47 banks raised capital).
Source: GAO analysis of data from SNLFinancial.
Note: The spike in common equity issuance in the fourth quarter of
2009 primarily relates to Citigroup, Wells Fargo & Company, and other
banks raising capital to buy back their TARP capital investment from
Treasury. However, the quarterly data do not reflect $19.29 billion of
common equivalent securities issued in December 2009 by Bank of
America that converted to common stock in February 2010.
[End of figure]
Similarly, stock market prices since the release of the stress test
results in May 2009 through October 2009 improved substantially in the
overall banking sector and among the 18 public BHCs that participated
in SCAP (see figure 5).[Footnote 36] The initial increase since May
2009 also suggests that SCAP may have helped bolster investor and
public confidence. However, equity markets are generally volatile and
react to a multitude of events.
Figure 5: Stock Market Prices, October 2007 through March 2010:
[Refer to PDF for image: multiple line graph]
Prices indicated are from the first business day of the month.
October 2007:
S & P 500: -0.03%;
Financial industry measure: 1.14%;
Simple average of 18 public BHCs: 0.63%.
November 2007:
S & P 500: -2.5%;
Financial industry measure: -8.51%;
Simple average of 18 public BHCs: -7.45%.
December 2007:
S & P 500: -4.82%;
Financial industry measure: -12.08%;
Simple average of 18 public BHCs: -9.37%.
January 2008:
S & P 500: -6.46%;
Financial industry measure: -18.19%;
Simple average of 18 public BHCs: -17.63%.
February 2008:
S & P 500: -9.8%;
Financial industry measure: -14.38%;
Simple average of 18 public BHCs: -10.23%.
March 2008:
S & P 500: -13.94%;
Financial industry measure: -26.49%;
Simple average of 18 public BHCs: -23.12%.
April 2008:
S & P 500: -11.43%;
Financial industry measure: -22.59%;
Simple average of 18 public BHCs: -15.65%.
May 2008:
S & P 500: -8.9%;
Financial industry measure: -19.98%;
Simple average of 18 public BHCs: -13.1%.
June 2008:
S & P 500: -10.43%;
Financial industry measure: -29.07%;
Simple average of 18 public BHCs: -24.87%.
July 2008:
S & P 500: -16.94%;
Financial industry measure: -40.38%;
Simple average of 18 public BHCs: -38.14%.
August 2008:
S & P 500: -18.53%;
Financial industry measure: -36.54%;
Simple average of 18 public BHCs: -30.55%.
September 2008:
S & P 500: -17.42%;
Financial industry measure: -36.26%;
Simple average of 18 public BHCs: -28.32%.
October 2008:
S & P 500: -24.95%;
Financial industry measure: -38.78%;
Simple average of 18 public BHCs: -26.1%.
November 2008:
S & P 500: -37.54%;
Financial industry measure: -53.72%;
Simple average of 18 public BHCs: -39.67%.
December 2008:
S & P 500: -47.24%;
Financial industry measure: -68.75%;
Simple average of 18 public BHCs: -58.93%.
January 2009:
S & P 500: -39.77%;
Financial industry measure: -61.92%;
Simple average of 18 public BHCs: -51.84%.
February 2009:
S & P 500: -46.64%;
Financial industry measure: -72.22%;
Simple average of 18 public BHCs: -68.06%.
March 2009:
S & P 500: -54.7%;
Financial industry measure: -78.58%;
Simple average of 18 public BHCs: -74.78%.
April 2009:
S & P 500: -47.57%;
Financial industry measure: -72.5%;
Simple average of 18 public BHCs: -67.58%.
May 2009:
S & P 500: -43.28%;
Financial industry measure: -67.67%;
Simple average of 18 public BHCs: -61.13%.
June 2009:
S & P 500: -39.05%;
Financial industry measure: -62.48%;
Simple average of 18 public BHCs: -55.14%.
July 2009:
S & P 500: -40.32%;
Financial industry measure: -63.74%;
Simple average of 18 public BHCs: -56.78%.
August 2009:
S & P 500: -35.19%;
Financial industry measure: -59.28%;
Simple average of 18 public BHCs: -50.55%.
September 2009:
S & P 500: -35.49%;
Financial industry measure: -57.53%;
Simple average of 18 public BHCs: -48.36%.
October 2009:
S & P 500: -33.43%;
Financial industry measure: -56.27%;
Simple average of 18 public BHCs: -47.32%.
November 2009:
S & P 500: -32.59%;
Financial industry measure: -56.61%;
Simple average of 18 public BHCs: -47.07%.
December 2009:
S & P 500: -28.32%;
Financial industry measure: -55.07%;
Simple average of 18 public BHCs: -44.82%.
January 2010:
S & P 500: -26.76%;
Financial industry measure: -54.86%;
Simple average of 18 public BHCs: -45.29%.
February 2010:
S & P 500: -29.6%;
Financial industry measure: -55.69%;
Simple average of 18 public BHCs: -44.48%.
March 2010:
S & P 500: -27.88%;
Financial industry measure: -54.76%;
Simple average of 18 public BHCs: -44.51%.
Source: GAO analysis of Yahoo! Finance data.
[End of figure]
Credit default swap spreads, another measure of confidence in the
banking sector, also improved. A credit default swap is an agreement
in which a buyer pays a periodic fee to a seller in exchange for
protection from certain credit events such as bankruptcy, failure to
pay debt obligations, or a restructuring related to a specific debt
issuer or issues known as the reference entity. Therefore, the credit
default swap spread, or market price, is a measure of the credit risk
of the reference entity, with a higher spread indicating a greater
amount of credit risk. When the markets' perception of the reference
entity's credit risk deteriorates or improves, the spread generally
will widen or tighten, respectively. Following the SCAP results
release in May 2009, the credit default swap spreads continued to see
improvements (see figure 6). While many forces interact to influence
investors' actions, these declining spreads suggest that the market's
perception of the risk of banking sector defaults was falling.
Further, the redemption of TARP investments by some banking
institutions demonstrated that regulators believed these firms could
continue to serve as a source of financial and managerial strength, as
well as fulfill their roles as intermediaries that facilitate lending,
while both reducing reliance on government funding and maintaining
adequate capital levels. This positive view of the regulators may also
have helped increase market confidence in the banking system (see
appendix II for details on the status of TARP investments in the
institutions participating in SCAP).
Figure 6: Bank Credit Default Swap Spreads, January 2007 through March
2010:
[Refer to PDF for image: multiple line graph]
Credit default swap spread in basis points indicated are from the
first business day of the indicated month.
January 2007;
Bank index: 12.2;
Average of 12 of the 19 SCAP BHCs: 22;
GMAC: 100.5.
February 2007;
Bank index: 12.5;
Average of 12 of the 19 SCAP BHCs: 21.9;
GMAC: 100.5.
March 2007;
Bank index: 18.1;
Average of 12 of the 19 SCAP BHCs: 26.0;
GMAC: 100.5.
April 2007;
Bank index: 22.4;
Average of 12 of the 19 SCAP BHCs: 28.9;
GMAC: 100.5.
May 2007;
Bank index: 16.1;
Average of 12 of the 19 SCAP BHCs: 24.9;
GMAC: 100.5.
June 2007;
Bank index: 14.0;
Average of 12 of the 19 SCAP BHCs: 27.4;
GMAC: 133.8.
July 2007;
Bank index: 20.4;
Average of 12 of the 19 SCAP BHCs: 40.3;
GMAC: 206.7.
August 2007;
Bank index: 49.0;
Average of 12 of the 19 SCAP BHCs: 91.1;
GMAC: 428.5.
September 2007;
Bank index: 53.1;
Average of 12 of the 19 SCAP BHCs: 112.5;
GMAC: 589.7.
October 2007;
Bank index: 42.0;
Average of 12 of the 19 SCAP BHCs: 73.2;
GMAC: 343.8.
November 2007;
Bank index: 80.1;
Average of 12 of the 19 SCAP BHCs: 116.2;
GMAC: 587.5.
December 2007;
Bank index: 116.5;
Average of 12 of the 19 SCAP BHCs: 148.8;
GMAC: 675.4.
January 2008;
Bank index: 125.3;
Average of 12 of the 19 SCAP BHCs: 160.6;
GMAC: 760.
February 2008;
Bank index: 121.6;
Average of 12 of the 19 SCAP BHCs: 192.6;
GMAC: 772.7.
March 2008;
Bank index: 200.8;
Average of 12 of the 19 SCAP BHCs: 269.1;
GMAC: 1096.5.
April 2008;
Bank index: 188.4;
Average of 12 of the 19 SCAP BHCs: 227.4;
GMAC: 1238.8.
May 2008;
Bank index: 99.7;
Average of 12 of the 19 SCAP BHCs: 161.8;
GMAC: 1029.8.
June 2008;
Bank index: 145.4;
Average of 12 of the 19 SCAP BHCs: 189.2;
GMAC: 1076.5.
July 2008;
Bank index: 216.7;
Average of 12 of the 19 SCAP BHCs: 293.4;
GMAC: 1809.5.
August 2008;
Bank index: 269.2;
Average of 12 of the 19 SCAP BHCs: 323.6;
GMAC: 2065.3
September 2008;
Bank index: 367.0;
Average of 12 of the 19 SCAP BHCs: 337.8;
GMAC: 1979.
October 2008;
Bank index: 247.6;
Average of 12 of the 19 SCAP BHCs: 697.0;
GMAC: 4573.7.
November 2008;
Bank index: 147.6;
Average of 12 of the 19 SCAP BHCs: 438.5;
GMAC: 2515.8.
December 2008;
Bank index: 204.1;
Average of 12 of the 19 SCAP BHCs: 633.6;
GMAC: 4215.1.
January 2009;
Bank index: 142.1;
Average of 12 of the 19 SCAP BHCs: 280.4;
GMAC: 805.4.
February 2009; Announcement of stress test as part of FSP (February
10);
Bank index: 185.0;
Average of 12 of the 19 SCAP BHCs: 328.1;
GMAC: 1012.6.
March 2009;
Bank index: 283.4;
Average of 12 of the 19 SCAP BHCs: 614.4;
GMAC: 2798.3.
April 2009;
Bank index: 363.1;
Average of 12 of the 19 SCAP BHCs: 588.9;
GMAC: 2051.6.
May 2009; Release of stress test results (May 7);
Bank index: 291.6;
Average of 12 of the 19 SCAP BHCs: 420.6;
GMAC: 977.2.
June 2009;
Bank index: 157.5;
Average of 12 of the 19 SCAP BHCs: 245.0;
GMAC: 740.4.
July 2009;
Bank index: 195.7;
Average of 12 of the 19 SCAP BHCs: 292.3;
GMAC: 843.9.
August 2009;
Bank index: 131.3;
Average of 12 of the 19 SCAP BHCs: 216.4;
GMAC: 675.1.
September 2009;
Bank index: 139.9;
Average of 12 of the 19 SCAP BHCs: 227;
GMAC: 741.91.
October 2009;
Bank index: 116.6;
Average of 12 of the 19 SCAP BHCs: 194.0;
GMAC: 712.8.
November 2009;
Bank index: 114.5;
Average of 12 of the 19 SCAP BHCs: 180.2;
GMAC: 612.3.
December 2009;
Bank index: 116.0;
Average of 12 of the 19 SCAP BHCs: 178.4;
GMAC: 605.5.
January 2010;
Bank index: 93.9;
Average of 12 of the 19 SCAP BHCs: 131.0;
GMAC: 409.5.
February 2010;
Bank index: 116.8;
Average of 12 of the 19 SCAP BHCs: 156.3;
GMAC: 423.1.
March 2010;
Bank index: 122.2;
Average of 12 of the 19 SCAP BHCs: 164.9;
GMAC: 451.7.
April 2010;
Bank index: 98.1;
Average of 12 of the 19 SCAP BHCs: 131.6;
GMAC: 334.7.
Source: GAO analysis of Thomson Reuters Datastream.
[End of figure]
The 19 Tested BHCs Experienced Better Performance Than a Pro Rata
Estimate under the More Adverse Scenario:
As of the end of 2009, while the SCAP BHCs generally had not
experienced the level of losses that were estimated on a pro rata
basis under the stress test's more adverse economic scenario, concerns
remain that some banks could absorb potentially significant losses in
certain asset categories that would erode capital levels.
Collectively, the BHCs' total loan losses of $141.2 billion were
approximately 38 percent less than the GAO-calculated $229.4 billion
in pro rata losses under the more adverse scenario for 2009 (see table
5).[Footnote 37] The BHCs also experienced significant gains in
securities and trading and counterparty credit risk portfolios
compared with estimated pro rata losses under SCAP. Total resources
other than capital to absorb losses (resources) were relatively close
to the pro rata amount, exceeding it by 4 percent.
Table 5: Actual and GAO Pro Rata Estimates of Aggregate Losses and
Changes in Resources Other than Capital to Absorb Losses across the 19
SCAP BHCs, December 31, 2009:
Asset category: Consumer and commercial loan losses; First-lien
mortgages;
Actual: $19.2 billion;
GAO pro rata estimate[A]: $51.2 billion;
Percent difference: -62%.
Asset category: Consumer and commercial loan losses; Second/junior
lien mortgages;
Actual: $26.1 billion;
GAO pro rata estimate[A]: $41.6 billion;
Percent difference: -37.
Asset category: Consumer and commercial loan losses; Commercial and
industrial loans;
Actual: $21.2 billion;
GAO pro rata estimate[A]: $30.1 billion;
Percent difference: -29.
Asset category: Consumer and commercial loan losses; Commercial real
estate loans;
Actual: $13.5 billion;
GAO pro rata estimate[A]: $26.5 billion;
Percent difference: -49.
Asset category: Consumer and commercial loan losses; Credit card loans;
Actual: $31.6 billion;
GAO pro rata estimate[A]: $41.2 billion;
Percent difference: -23.
Asset category: Consumer and commercial loan losses; Other[B];
Actual: $29.5 billion;
GAO pro rata estimate[A]: $38.9 billion;
Percent difference: -24.
Total consumer and commercial loans losses;
Actual: $141.2 billion;
GAO pro rata estimate[A]: $229.4 billion;
Percent difference: -38%.
Asset category: Securities--available for sale and held to maturity--
losses (gains);
Actual: ($3.5 billion);
GAO pro rata estimate[A]: $17.6 billion;
Percent difference: -120.
Asset category: Trading and counterparty losses (gains);
Actual: ($56.9 billion);
GAO pro rata estimate[A]: $49.7 billion;
Percent difference: -215.
Total asset losses:
Actual: $80.8 billion;
GAO pro rata estimate[A]: $296.7 billion;
Percent difference: -73%.
Resources other than capital to absorb losses:
Actual: $188.4 billion;
GAO pro rata estimate[A]: $181.5 billion;
Percent difference: 4%.
Sources: GAO analysis of Federal Reserve SCAP and SNL Financial data.
Notes: A parenthetical number indicates a gain.
The trading and counterparty data in the Y-9C includes both customer
derived revenue from transactions for BHCs that operate as broker-
dealers, as well as gains and losses from proprietary trading and
associated expenses. These items are presented on a net basis in the Y-
9C. For the five BHCs that had their trading portfolios stressed
(Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase & Co., and
Bank of America), the trading and counterparty line item is based on
projections of gains or losses from proprietary trading, but
preprovision net revenue (specifically noninterest revenue) included
projections of gains or losses from customer derived revenue from
transactions due to operations as a broker-dealer. These items cannot
be segregated based on the Y-9C data and therefore are included in the
net amount in both the trading and counterparty and noninterest income
line items above. As a result of this limitation, the net amount of
the trading gains or losses and preprovision net revenue in the table
may be overstated or understated.
[A] GAO calculated 1-year pro rata loss estimates by dividing the SCAP
more adverse 2-year loss estimates by 2 (e., the straight-line
method). A key limitation of this approach is that it assumes equal
distribution of losses, revenues, expenses, and changes to reserves
over time, although these items were unlikely to be distributed evenly
over the 2-year period. Another important consideration is that actual
results were not intended and should not be expected to align with the
SCAP projections.
[B] For "Other" we excluded about $6 billion in losses for State
Street Corporation realized in 2009. Since this was a one-time charge
that was realized in 2009, this effect was segregated from more
typical loss amounts for our tracking purposes.
[End of table]
In tracking BHCs' losses and resources against the SCAP estimates, we
compared the actual results with those estimated under the more
adverse scenario. We used the 2-year estimates of the more adverse
scenario from the SCAP results and annualized those amounts by
dividing them in half (the "straight line" method) to get pro rata
loss estimates for 2009 because the SCAP regulators did not develop
estimates on a quarterly or annual basis. A key limitation of this
approach is that it assumes equal distribution of losses, revenues,
expenses, and changes to reserves over time, although these items were
unlikely to be distributed evenly over the 2-year period. Another
important consideration is that actual results were not intended and
should not be expected to align with the SCAP projections. Actual
economic performance in 2009 differed from the SCAP macroeconomic
variable inputs, which were based on a scenario that was more adverse
than was anticipated or than occurred, and other forces in the
business and regulatory environment could have influenced the timing
and level of losses. Appendix I contains additional details on our
methodology, including our data sources and calculations, for tracking
BHCs' financial performance data.
Losses Varied by Individual BHCs:
Although the 19 BHCs' actual combined losses were less than the 2009
pro rata loss estimates for the more adverse scenario, the loss rates
varied significantly by individual BHCs. For example, most of the BHCs
had consumer and commercial loan losses that were below the pro rata
loss estimates, but three BHCs--GMAC, Citigroup, and SunTrust Banks
Inc. (SunTrust)--exceeded these estimates in at least one portfolio
(see figure 7). GMAC was the only one with 2009 loan losses on certain
portfolios that exceeded SCAP's full 2-year estimate. Specifically,
GMAC exceeded the SCAP 2-year estimated losses in the first-lien,
second/junior lien, and commercial real estate portfolios and the 1-
year pro rata losses in the "Other" portfolio; Citigroup exceeded the
1-year pro rata estimated losses in the commercial and industrial loan
portfolio; and SunTrust exceeded the 1-year estimated losses in the
first-lien and credit card portfolios. Appendix III provides detailed
data on the individual performance of each of the BHCs.
Figure 7: Comparison of Actual and GAO Pro Rata Estimated Losses for
Consumer and Commercial Loans, December 31, 2009:
[Refer to PDF for image: plotted point graph]
The graph depicts actual and GAO pro rata estimated losses in the
following six categories for 19 BHCs:
Commercial real estate:
Commercial and industrial loans:
First-lien mortgages:
Second/junior lien mortgages:
Credit cards:
Other:
The 19 BHCs are:
American Express Co.
BB&T Corp.
The Bank of New York Mellon Corp.
Bank of America Corp.
Capital One Financial Corp.
Citigroup Inc.
Fifth Third Bancorp;
GMAC LLC;
JPMorgan Chase & Co.
KeyCorp;
MetLife, Inc.
Morgan Stanley;
PNC Financial Services Group Inc.
Regions Financial Corp.
State Street Corp.
SunTrust Banks. Inc.
U.S. Bancorp;
Wells Fargo & Co.
Included on the chart are the total losses for 19 BHCs.
Source: GAO analysis of Federal Reserve and SNLFinancial data.
Notes: Figure shows only those loan loss categories that were
applicable under SCAP and that showed losses in 2009. In addition,
Goldman Sachs was not included in the figure because it had no losses
or recoveries for these loan categories in 2009. The "Other" category
for State Street Corporation does not include one-time items in the
actual or estimated amounts. See table 27 in appendix III for
additional details.
GAO calculated 1-year pro rata loss estimates by dividing the SCAP
more adverse 2-year loss estimates by 2 (i.e., the straight-line
method). A key limitation of this approach is that it assumes equal
distribution of losses, revenues, expenses, and changes to reserves
over time, although these items were unlikely to be distributed evenly
over the 2-year period. Another important consideration is that actual
results were not intended and should not be expected to align with the
SCAP projections.
[End of figure]
GMAC faced particular challenges in the first year of the assessment
period and posed some risk to the federal government, a majority
equity stakeholder.[Footnote 38] GMAC's loan losses in its first-lien
portfolio were $2.4 billion, compared with the $2 billion projected
for the full 2-year period. In the second/junior lien portfolio, GMAC
saw losses of $1.6 billion, compared with the $1.1 billion estimated
losses for the 2 years. GMAC experienced losses of $710 million in its
commercial real estate portfolio, compared with $600 million projected
for the full 2-year period. Further, in its "Other" portfolio (which
is comprised of auto leases and consumer auto loans), GMAC's losses
were $2.1 billion, exceeding the 1-year pro rata $2 billion loss
estimate. With a tier 1 common capital ratio of 4.85 percent--just
more than the SCAP threshold of 4 percent--at the end of 2009, GMAC
has a relatively small buffer in the face of potential losses.
GMAC's position should be placed in context, however, because it is
relatively unique among the SCAP participants. It was the only
nonpublicly traded participant, and the federal government owns a
majority equity stake in the company as a result of capital
investments made through the Automotive Industry Financing Program
under TARP. Further, GMAC's core business line--financing for
automobiles--is dependent on the success of efforts to restructure,
stabilize, and grow General Motors Company and Chrysler Group
LLC.[Footnote 39] Finally, the Federal Reserve told us that because
GMAC only recently became a BHC and had not previously been subject to
banking regulations, it would take some time before GMAC was fully
assimilated into a regulated banking environment.[Footnote 40] To
improve its future operating performance and better position itself to
become a public company in the future, GMAC officials stated that the
company posted large losses in the fourth quarter of 2009 as result of
accelerating its recognition of lifetime losses on loans.[Footnote 41]
In addition, the company has been restructuring its operations and
recently sold off some nonperforming assets.[Footnote 42] However, the
credit rating agencies we met with generally believed that there could
still be further losses at GMAC, although the agencies were less
certain about the pace and level of those losses. Two of the agencies
identified GMAC's Residential Capital, LLC mortgage operation as the
key source of potential continued losses.
BHCs Are Generally Not Experiencing the Level of Securities and
Trading Losses That Were Estimated under the Pro Rata More Adverse
Scenario, and Some Have Recorded Gains:
Given that market conditions have generally improved, the BHCs'
investments in securities and trading account assets performed
considerably better in 2009 than had been estimated under the pro rata
more adverse scenario.[Footnote 43] The SCAP assessment of the
securities portfolio consisted of an evaluation for possible
impairment of the portfolio's assets, including Treasury securities,
government agency securities, sovereign debt, and private sector
securities. In the aggregate, the securities portfolio has experienced
a gain of $3.5 billion in 2009, compared with a pro rata estimated
loss of $17.6 billion under the stress test's more adverse scenario.
As figure 8 shows, 5 of the 19 BHCs recorded securities losses in
2009,[Footnote 44] 13 recorded gains, and 1 (Morgan Stanley) recorded
no gain or loss. Losses were projected at 17 of the BHCs under the pro
rata more adverse scenario, and SCAP regulators did not consider the
remaining 2 BHCs (American Express Company and Morgan Stanley) to be
applicable for this category. In the securities portfolio, The Bank of
New York Mellon Corporation had losses greater than estimated under
SCAP for the full 2-year period.[Footnote 45] The variances could be
due to a number of factors, including the extent to which a BHC
decides to deleverage, how their positions react to changing market
values, and other factors.
Figure 8: Comparison of Actual and GAO Pro Rata Estimated Gains and
Losses for Securities Available for Sale and Held to Maturity,
December 31, 2009:
[Refer to PDF for image: horizontal bar graph]
BHC: AmEx
Actual results: $0.225 billion;
GAO pro rata estimates for more adverse scenario: n/a.
BHC: BB&T
Actual results: $0.199 billion;
GAO pro rata estimates for more adverse scenario: -$0.1 billion.
BHC: BNYM
Actual results: -$5.369 billion;
GAO pro rata estimates for more adverse scenario: -$2.1 billion;
BHC: BofA
Actual results: $2.528 billion;
GAO pro rata estimates for more adverse scenario: -$4.3 billion.
BHC: CapOne
Actual results: $0.206v;
GAO pro rata estimates for more adverse scenario: -$0.2 billion.
BHC: Citi
Actual results: -$0.91 billion;
GAO pro rata estimates for more adverse scenario: -$1.5 billion.
BHC: FifthThird
Actual results: $0.057 billion;
GAO pro rata estimates for more adverse scenario: -$0.03 billion.
BHC: GMAC
Actual results: $0.166 billion;
GAO pro rata estimates for more adverse scenario: -$0.25 billion.
BHC: Goldman
Actual results: $0.036 billion;
GAO pro rata estimates for more adverse scenario: -$0.05 billion.
BHC: JPMC
Actual results: $1.11 billion;
GAO pro rata estimates for more adverse scenario: -$0.6 billion.
BHC: KeyCorp
Actual results: $0.113 billion;
GAO pro rata estimates for more adverse scenario: -$0.05 billion.
BHC: MetLife
Actual results: -$1.631 billion;
GAO pro rata estimates for more adverse scenario: -$4.15 billion.
BHC: PNC
Actual results: -$0.027 billion;
GAO pro rata estimates for more adverse scenario: -$0.65 billion.
BHC: Regions
Actual results: $0.006 billion;
GAO pro rata estimates for more adverse scenario: -$0.1 billion.
BHC: State St
Actual results: $0.141 billion;
GAO pro rata estimates for more adverse scenario: -$0.9 billion.
BHC: SunTrust
Actual results: $0.098 billion;
GAO pro rata estimates for more adverse scenario: -$0.01 billion.
BHC: USB
Actual results: -$0.451 billion;
GAO pro rata estimates for more adverse scenario: -$0.65 billion.
BHC: Wells
Actual results: $0.205 billion;
GAO pro rata estimates for more adverse scenario: -$2.1 billion.
Source: GAO analysis of Federal Reserve and SNLFinancial data.
Notes: Morgan Stanley was not included in the figure because it has
not had any available for sale or held to maturity securities gains
(losses) in 2009 and was deemed to be not applicable for this category
in SCAP. American Express Company was also deemed not applicable for
this category in SCAP, but was included in the figure because it had
securities gains in 2009.
GAO calculated 1-year pro rata loss estimates by dividing the SCAP
more adverse 2-year loss estimates by 2 (i.e., the straight-line
method). A key limitation of this approach is that it assumes equal
distribution of losses, revenues, expenses, and changes to reserves
over time, although these items were unlikely to be distributed evenly
over the 2-year period. Another important consideration is that actual
results were not intended and should not be expected to align with the
SCAP projections.
[End of figure]
To estimate trading and counterparty losses, SCAP regulators assumed
that these investments would be subject to the change in value of a
proportional level as experienced in the last half of 2008.[Footnote
46] The trading portfolio shows an even greater difference between the
1-year pro rata estimates and the actual performance--a gain of $56.9
billion in 2009 rather than the pro rata $49.7 billion estimated loss
under the more adverse scenario (see table 5). The stress test only
calculated trading and counterparty credit loss estimates for the five
BHCs with trading assets that exceeded $100 billion.[Footnote 47] All
five had trading gains as opposed to losses, based on the publicly
available data from the Y-9C.[Footnote 48] These gains were the result
of a number of particular circumstances. First, the extreme spreads
and risk premium resulting from the lack of liquidity during the
financial crisis--especially in the second half of 2008--reversed in
2009, improving the pricing of many risky trading assets that remained
on BHCs' balance sheets. Because the trading portfolio is valued at
fair value, it had been written down for the declines in value that
occurred throughout 2008 and the first quarter of 2009 and saw
significant gains when the market rebounded through the remainder of
2009. Second, the crisis led to the failure or absorption of several
large investment banks, reducing the number of competitors and,
according to our analysis of Thomson Reuters Datastream, increased
market share and pricing power for the remaining firms.[Footnote 49]
Finally, the Federal Reserve's low overnight bank lending rates (near
0 percent) have prevailed for a long period and have facilitated a
favorable trading environment for BHCs. This enabled BHCs to fund
longer-term, higher yielding assets in their trading portfolios with
discounted wholesale funding (see figure 9).[Footnote 50]
Figure 9: Comparison of Actual and GAO Pro Rata Estimated Gains and
Losses for Trading and Counterparty, December 31, 2009:
[Refer to PDF for image: horizontal bar graph]
BHC: BofA;
Actual results: $12.067 billion;
GAO pro rata estimates for more adverse scenario: -$12.05 billion.
BHC: Citi;
Actual results: $4.448 billion;
GAO pro rata estimates for more adverse scenario: -$11.2 billion.
BHC: Goldman;
Actual results: $23.234 billion;
GAO pro rata estimates for more adverse scenario: -$8.7 billion.
BHC: JPMC;
Actual results: $9.87 billion;
GAO pro rata estimates for more adverse scenario: -$8.35 billion.
BHC: Morgan Stanley;
Actual results: $7.279 billion;
GAO pro rata estimates for more adverse scenario: -$9.35 billion.
Source: GAO analysis of Federal Reserve and SNLFinancial data.
Notes: SCAP regulators only generated trading and counterparty
estimates for the 5 BHCs with a trading book (assets) greater than
$100 billion, therefore this comparison is not applicable to the other
14 BHCs.
GAO calculated 1-year pro rata loss estimates by dividing the SCAP
more adverse 2-year loss estimates by 2 (i.e., the straight-line
method). A key limitation of this approach is that it assumes equal
distribution of losses, revenues, expenses, and changes to reserves
over time, although these items were unlikely to be distributed evenly
over the 2-year period. Another important consideration is that actual
results were not intended and should not be expected to align with the
SCAP projections.
[End of figure]
Potential Losses in Consumer and Commercial Credit Continue to Pose a
Challenge:
Potentially large losses in consumer and commercial loans continue to
challenge SCAP BHCs, and addressing these challenges depends on a
variety of factors, including, among other things, the effectiveness
of federal efforts to reduce foreclosures in the residential mortgage
market. The BHCs absorbed nearly $400 billion in losses in the 18
months ending December 31, 2008. As they continue to experience the
effects of the recent financial crisis, estimating precisely how much
more they could lose is difficult. In March 2010, officials from two
credit rating agencies indicated that 50 percent or more of the losses
the banking industry was expected to incur during the current
financial crisis could still be realized if the economy were to suffer
further stresses.
Data for the 19 BHCs show a rapid rise in the percentage of
nonperforming loans over the course of 2009 (see figure 10).[Footnote
51] Specifically, total nonperforming loans grew from 1 percent in the
first quarter of 2007 to 6.6 percent in the fourth quarter of 2009 for
SCAP BHCs. In particular, increases in total nonperforming loans were
driven by significant growth in nonperforming first-lien mortgages and
commercial real estate loans. Standard & Poor's Corporation noted that
many nonperforming loans may ultimately have to be charged-off,
exposing the BHCs to further potential losses. According to the credit
rating agencies that we interviewed, federal housing policy to aid
homeowners who are facing foreclosures, as well as time lags in the
commercial real estate markets, will likely continue to affect the
number of nonperforming loans for the remainder of the SCAP time frame
(December 2010).
Figure 10: Change in the Percentage of Nonperforming Loans for
Applicable SCAP BHCs, by Loan Type, First Quarter 2007 through Fourth
Quarter 2009:
[Refer to PDF for image: multiple line graph]
2007, Q1;
Total loans: 1%;
First-lien mortgages: 1.5%;
Second/junior lien mortgages: 0.5%;
Commercial and industrial loans: 0.6%;
Commercial real estate: 0.5%;
Credit cards: 2.3%;
Other: 0.7%.
2007, Q2;
Total loans: 1%;
First-lien mortgages: 1.6%;
Second/junior lien mortgages: 0.6%;
Commercial and industrial loans: 0.6%;
Commercial real estate: 0.6v
Credit cards: 2.1%;
Other: 0.7%.
2007, Q3;
Total loans: 1.1%;
First-lien mortgages: 1.9%;
Second/junior lien mortgages: 0.7%;
Commercial and industrial loans: 0.6v
Commercial real estate: 0.8%;
Credit cards: 2.3%;
Other: 0.9%.
2007, Q4;
Total loans: 1.4%;
First-lien mortgages: 2.4%;
Second/junior lien mortgages: 1%;
Commercial and industrial loans: 0.7%;
Commercial real estate: 1.2%;
Credit cards: 2.6%;
Other: 1.1%.
2008, Q1;
Total loans: 1.7%;
First-lien mortgages: 3%;
Second/junior lien mortgages: 1.3%;
Commercial and industrial loans: 0.8%;
Commercial real estate: 1.8%;
Credit cards: 2.7%;
Other: 1.2%.
2008, Q2;
Total loans: 2%;
First-lien mortgages: 3.7%;
Second/junior lien mortgages: 1.4%;
Commercial and industrial loans: 1.1%;
Commercial real estate: 2.5%;
Credit cards: 2.7%;
Other: 1.2%.
2008, Q3;
Total loans: 2.5%;
First-lien mortgages: 5.3%;
Second/junior lien mortgages: 1.7%;
Commercial and industrial loans: 1.4%;
Commercial real estate: 2.7%;
Credit cards: 2.6%;
Other: 1.3%.
2008, Q4;
Total loans: 3.4%;
First-lien mortgages: 7.1%;
Second/junior lien mortgages: 1.9%;
Commercial and industrial loans: 2%;
Commercial real estate: 3.3%;
Credit cards: 3%;
Other: 1.9%.
2009, Q1;
Total loans: 4.3%;
First-lien mortgages: 8.7%;
Second/junior lien mortgages: 2.4%;
Commercial and industrial loans: 2.6%;
Commercial real estate: 4.7%;
Credit cards: 3.8%;
Other: 2.2%.
2009, Q2;
Total loans: 5.1%;
First-lien mortgages: 10.3%;
Second/junior lien mortgages: 2.5%;
Commercial and industrial loans: 3.4%;
Commercial real estate: 6.5%;
Credit cards: 4%;
Other: 2.4%.
2009, Q3;
Total loans: 6%;
First-lien mortgages: 12.7%;
Second/junior lien mortgages: 2.6%;
Commercial and industrial loans: 4.4%;
Commercial real estate: 7.8%;
Credit cards: 3.5%;
Other: 2.5%.
2009, Q4;
Total loans: 6.6%;
First-lien mortgages: 14.9%;
Second/junior lien mortgages: 2.6%;
Commercial and industrial loans: 4.3%;
Commercial real estate: 8.6%;
Credit cards: 3.8%;
Other: 2.4%.
[End of figure]
Note: Because they converted to BHCs in late 2008, American Express
Company, Goldman Sachs, and Morgan Stanley did not submit Y-9Cs to the
Federal Reserve until the first quarter of 2009, and GMAC did not
submit its Y-9C until the second quarter of 2009. As a result, the
data do not include information on these holding companies before
those dates.
Source: GAO analysis of Federal Reserve and SNLFinancial data.
The Economic and Regulatory Environment Could Impact BHCs' Net
Revenues and Loss Reserves:
The total amount of resources other than capital to absorb losses
(resources) has tracked the amount GAO prorated under the stress
test's more adverse scenario. Resources measure how much cushion the
BHCs have to cover loans losses. As shown previously in table 5, the
aggregate actual results through the end of 2009 for resources showed
a total of $188.4 billion, or 4 percent more than GAO's pro rata
estimated $181.5 billion in the stress test's more adverse scenario.
Eleven of the 19 BHCs tracked greater than the pro rata estimated
amount in 2009, while the remaining 8 tracked less than the estimate
(see figure 11). GMAC and MetLife, Inc. had negative resources in
2009, although only GMAC was projected to have negative resources over
the full 2-year period.
Figure 11: Comparison of Actual and GAO Pro Rata Estimated Resources
Other Than Capital to Absorb Losses, December 31, 2009:
[Refer to PDF for image: horizontal bar graph]
BHC: American Express Co.
Actual results: $7.37 billion;
GAO pro rata estimates for more adverse scenario: $5.95 billion.
BHC: BB&T Corp.
Actual results: $2.61 billion;
GAO pro rata estimates for more adverse scenario: $2.75 billion.
BHC: The Bank of NewYork Mellon Corp.
Actual results: $3.36 billion;
GAO pro rata estimates for more adverse scenario: $3.35 billion.
BHC: Bank of America Corp.
Actual results: $29.55 billion;
GAO pro rata estimates for more adverse scenario: $37.25 billion.
BHC: Capital One Financial Corp.
Actual results: $5.76 billion;
GAO pro rata estimates for more adverse scenario: $4.5 billion.
BHC: Citigroup Inc.
Actual results: $25.45 billion;
GAO pro rata estimates for more adverse scenario: $24.5 billion.
BHC: Fifth Third Bancorp:
Actual results: $3.29 billion;
GAO pro rata estimates for more adverse scenario: $2.75 billion.
BHC: GMAC LLC:
Actual results: -$1.07 billion;
GAO pro rata estimates for more adverse scenario: -$0.25 billion.
BHC: The GoldmanSachs Group Inc.
Actual results: $19.42 billion;
GAO pro rata estimates for more adverse scenario: $9.25 billion.
BHC: JPMorgan Chase & Co.
Actual results: $38.34 billion;
GAO pro rata estimates for more adverse scenario: $36.2 billion.
BHC: KeyCorp:
Actual results: $0.06 billion;
GAO pro rata estimates for more adverse scenario: $1.05 billion.
BHC: MetLife, Inc.
Actual results: -$1.09 billion;
GAO pro rata estimates for more adverse scenario: $2.8 billion.
BHC: Morgan Stanley:
Actual results: $1.01 billion;
GAO pro rata estimates for more adverse scenario: $3.55v
BHC: PNC FinancialServices Group, Inc.
Actual results: $6.18 billion;
GAO pro rata estimates for more adverse scenario: $4.8 billion.
BHC: Regions Financial Corp.
Actual results: $1.07 billion;
GAO pro rata estimates for more adverse scenario: $1.65 billion.
BHC: State Street Corp.
Actual results: $2.48 billion;
GAO pro rata estimates for more adverse scenario: $2.15 billion.
BHC: SunTrust Banks, Inc.
Actual results: $1.44 billion;
GAO pro rata estimates for more adverse scenario: $2.35 billion.
BHC: U.S. Bancorp:
Actual results: $7.08 billion;
GAO pro rata estimates for more adverse scenario: $6.85 billion.
BHC: Wells Fargo & Co.
Actual results: $36.14 billion;
GAO pro rata estimates for more adverse scenario: $30 billion.
Source: GAO analysis of Federal Reserve and SNL Financial data.
Notes: Resources other than capital to absorb losses are calculated as
preprovision net revenue less the change in allowance for loan and
lease losses.
GAO calculated 1-year pro rata loss estimates by dividing the SCAP
more adverse 2-year loss estimates by 2 (i.e., the straight-line
method). A key limitation of this approach is that it assumes equal
distribution of losses, revenues, expenses, and changes to reserves
over time, although these items were unlikely to be distributed evenly
over the 2-year period. Another important consideration is that actual
results were not intended and should not be expected to align with the
SCAP projections.
[End of figure]
Our calculation considers increases in ALLL during 2009 to be a drain
on resources in order to mirror the regulators' calculation for the
full 2-year projection. However, the ALLL may ultimately be used as a
resource in 2010, causing available resources to be higher than they
currently appear in our tracking. PPNR is based on numerous factors,
including interest income, trading revenues, and expenses. The future
course of this resource will be affected by factors such as the
performance of the general economy, the BHCs' business strategies, and
regulatory changes, including the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Dodd-Frank Act) and the Credit Card
Accountability, Responsibility, and Disclosure Act of 2009.[Footnote
52] Such regulatory changes could impose additional costs or reduce
future profitability, either of which would impact future PPNR.
SCAP Provided Lessons That Could Help Regulators Strengthen
Supervisory Oversight and BHCs Improve Risk Management Practices:
The SCAP stress test provided lessons in a number of areas that can be
incorporated in the bank supervision process and used to improve BHCs'
risk management practices. First, the transparency that was part of
SCAP helped bolster market confidence, but the Federal Reserve has not
yet developed a plan that incorporates transparency into the
supervisory process. Second, the SCAP experience highlighted that
BHCs' stress tests in the past were not sufficiently comprehensive and
we found that regulators' oversight of these tests has been generally
weak. Third, we identified opportunities to enhance both the process
and data inputs for conducting stress testing in the future. Finally,
SCAP demonstrated the importance of robust coordination and
communication among the different regulators as an integral part of
any effective supervisory process. By incorporating these lessons
going forward, regulators will be able to enhance their ability to
efficiently and effectively oversee the risk-taking in the banking
industry.
SCAP's Transparency Helped Bolster Market Confidence, but the Federal
Reserve Has Yet to Implement a Plan to Incorporate Greater
Transparency into the Supervisory Process:
As stated earlier and as agreed generally by market participants, the
public release of the SCAP design and results helped restore
confidence in the financial system during a period of severe turmoil.
Some agency officials stated that their experience in implementing
SCAP suggested that greater transparency would also be beneficial in
the supervisory process. In recent statements, the chairman and a
governor of the Federal Reserve have both stated that, while
protecting the confidentiality of firm-specific proprietary
information is imperative, greater transparency about the methods and
conclusions of future stress tests could benefit from greater scrutiny
by the public.[Footnote 53] The Federal Reserve governor also noted
that feedback from the public could help to improve the methodologies
and assumptions used in the supervisory process. In addition, they
noted that more transparency about the central bank's activities
overall would ultimately enhance market discipline and that the
Federal Reserve is looking at ways to enhance its disclosure policies.
[Footnote 54]
Consistent with the goal of greater transparency, we previously
recommended that the Federal Reserve consider periodically disclosing
to the public the aggregate performance of the 19 BHCs against the
SCAP estimates for the 2-year forecast period.[Footnote 55]
Subsequently, the chairman and a governor of the Federal Reserve have
publicly disclosed 2009 aggregate information about the performance of
the 19 BHCs based on the Federal Reserve's internal tracking. As the 2-
year SCAP period comes to a close at the end of 2010, completing a
final analysis that compares the performance of BHCs with the
estimated performance under the more adverse economic scenario would
be useful; however, at the time of the review, Federal Reserve
officials told us that they have not decided whether to conduct and
publicly release any type of analysis. Given that the chairman and a
governor of the Federal Reserve have already publicly disclosed some
aggregate BHC performance against the more adverse scenario for 2009,
providing the 2-year results would provide the public with consistent
and reliable information from the chief architect of the stress test
that could be used to further establish the importance of
understanding such tests and consider lessons learned about the rigor
of the stress test estimates.
Increasing transparency in the bank supervisory process is a more
controversial issue to address. Supervisory officials from OCC
(including the then Comptroller) and the Federal Reserve question the
extent to which greater transparency would improve day-to-day bank
supervision. And, some BHCs we interviewed also were against public
disclosure of future stress tests results. They noted that SCAP was a
one-time stress test conducted under unique circumstances.
Specifically, during the financial crisis, Treasury had provided a
capital backstop for BHCs that were unable to raise funds privately.
They expressed concern that public disclosure of certain unfavorable
information about individual banks in a normal market environment
could cause depositors to withdraw funds en masse creating a "run" on
the bank. In addition, banks that appear weaker than their peers could
be placed at a competitive disadvantage and may encourage them to
offer more aggressive rates and terms for new depositors, thereby
increasing their riskiness and further affecting their financial
stability. While these concerns are valid and deserve further
consideration, they have to be weighed against the potential benefits
of greater transparency about the financial health of financial
institutions and the banking system in general to investors,
creditors, and counterparties.
The Dodd-Frank Act takes significant steps toward greater
transparency. For example, the act requires the Federal Reserve to
perform annual stress tests on systematically significant institutions
and publicly release a summary of results. Also, the act requires each
of the systematically significant institutions to publicly report the
summary of internal stress tests semiannually.[Footnote 56] Given
comments by its senior leadership, the Federal Reserve is willing to
engage in a constructive dialogue about creating a plan for greater
transparency that could benefit the entire financial sector. The other
federal bank regulators--FDIC, OCC, and the Office of the Thrift
Supervision--are also critical stakeholders in developing such a plan.
While Federal Reserve officials have discussed possible options for
increasing transparency, the regulators have yet to engage in a formal
dialogue about these issues and have not formalized a plan for the
public disclosure of regulatory banking information or developed a
plan for integrating public disclosures into the ongoing supervisory
process. Without a plan for reconciling these divergent views and for
incorporating steps to enhance transparency into the supervisory
process and practices, including the public disclosure of certain
information, bank regulators may miss a significant opportunity to
enhance market discipline by providing investors, creditors, and
counterparties with information such as bank asset valuations.
Limited Use and Weak Oversight of BHCs' Stress Tests Prior to SCAP
Highlights the Need for More Rigorous Testing and Better Monitoring of
Tests:
SCAP highlighted that the development and utilization of BHCs' stress
tests were limited. Further, BHC officials noted that they failed to
adequately stress test for the effects of a severe economic downturn
scenario and did not test on a firmwide basis or test frequently
enough. We also found that the regulator's oversight of these tests
were weak, reinforcing the need for more rigorous and firmwide stress
testing, better risk governance processes by BHCs, and more vigorous
oversight of BHCs' stress tests by regulators. Going forward, as
stress tests become a fundamental part of oversights of individual
banks and the financial system, more specific guidance needs to be
developed for examiners. BHCs and regulators stated that they are
taking steps to address these shortcomings.
BHCs Generally Did Not Perform Firmwide Stress Tests Prior to SCAP:
Prior to SCAP, many BHCs generally performed stress tests on
individual portfolios, such as commercial real estate or proprietary
trading, rather than on a firmwide basis. SCAP led some institutions
to look at their businesses in the aggregate to determine how losses
would affect the holding company's capital base rather than individual
portfolios' capital levels. As a result, some BHC officials indicated
that they had begun making detailed assessments of their capital
adequacy and risk management processes and are making improvements.
Officials from one BHC noted that before SCAP their financial and risk
control teams had run separate stress tests, but had not communicate
or coordinate with each other about their stress testing activities.
Officials from another BHC noted that their senior management and
board of directors were not actively involved in the oversight of the
stress testing process. These officials said that since participating
in SCAP, they have improved in these areas by institutionalizing the
internal communication and coordination procedures between the
financial risk and control teams, and by increasing communication with
senior management and board of directors about the need for active
involvement in risk management oversight, respectively. These
improvements can enhance the quality of the stress testing process.
Moreover, officials of BHCs that were involved in ongoing bank mergers
during the SCAP process credited SCAP with speeding up of the
conversion process of the two institutions' financial systems since
the BHCs' staff had to work together to be able to quickly provide,
among other things, the aggregate asset valuations and losses of the
combined firm's balance sheets to the regulators.
BHC officials also stated that their stress tests would take a
firmwide view, that is, taking into account all business units and
risks within the holding company structure and would include updates
of the economic inputs used to determine potential losses and capital
needs in adverse scenarios. One BHC noted that it had developed
several severe stress scenarios for liquidity because the recent
financial crisis had shown that liquidity could deteriorate more
quickly than capital, endangering a company's prospects for survival.
This danger became evident in the failures of major financial
institutions during the recent financial crisis--for example, IndyMac
Bank, Lehman Brothers, and Bear Stearns.
BHCs Did Not Sufficiently Stress Their Portfolios for Unexpected
Losses Prior to SCAP:
Officials from many SCAP BHCs and the Federal Reserve noted that
internal bank stress test models generally did not use macroeconomic
assumptions and loss rates inputs as conservative as those used in the
SCAP stress test. According to Federal Reserve officials, using the
SCAP macroeconomic assumptions, most of the 19 BHCs that took part in
SCAP initially determined that they would not need additional capital
to weather the more adverse scenario. However, the SCAP test results
subsequently showed that more than half of them (10 of 19) did need to
raise capital to meet the SCAP capital buffer requirements. Some BHCs
indicated that future stress tests would be more comprehensive than
SCAP. BHCs can tailor their stress test assumptions to match their
specific business models, while SCAP generally used a one-size-fits-
all assumptions approach. For example, some BHCs noted that they use
macroeconomic inputs (such as disability claims, prolonged
stagflation, or consumer confidence) that were not found in the SCAP
stress test.
Although the Federal Reserve has required BHCs to conduct stress tests
since 1998, officials from several BHCs noted that their institutions
had not conducted rigorous stress tests in the years prior to SCAP, a
statement that is consistent with regulatory findings during the same
period. To some degree, this lack of rigorous testing reflected the
relatively good economic times that preceded the financial crisis.
According to one credit rating agency and a BHC, stress test
assumptions generally tend to be more optimistic in good economic
times and more pessimistic in bad economic times. In addition, one BHC
noted that it had conducted stress tests on and off for about 20
years, but usually only as the economy deteriorated. To address this
issue, many BHC officials said that they have incorporated or are
planning to incorporate more conservative inputs into their stress
test models and are conducting more rigorous, firmwide stress testing
more frequently.
Regulators Required Stress Tests Prior to SCAP, but Oversight Was
Limited:
Although regulators' guidelines have required for over 10 years that
financial institutions use stress tests to assess their capacity to
withstand losses, we found that regulators' oversight of these tests
had been limited. Horizontal examinations by the regulators from 2006
through 2008 identified multiple weaknesses in institutions' risk
management systems, including deficiencies in stress testing. Areas of
weaknesses found during examination included that the BHCs' stress
testing of their balance sheets lacked severity, were not performed
frequently enough, and were not done on a firmwide basis. Also, it was
found that BHCs' risk governance process lacked the active and
effective involvement of BHC senior management and board of directors.
The SCAP stress test and the financial crisis revealed the same
shortcomings in BHCs' risk management and stress testing practices.
However, we previously found that regulators did not always
effectively address these weaknesses or in some cases fully appreciate
their magnitude.[Footnote 57] Specifically, regulators did not take
measures to push forcefully for institutions to better understand and
manage risks in a timely and effective manner. In addition, according
to our discussions with some SCAP participants, oversight of these
tests through routine examinations was limited in scope and tended to
be discretionary. For example, regulators would review firms' internal
bank stress tests of counterparty risk and would make some
suggestions, but reviews of these tests were done at the discretion of
the individual supervisory team and were not consistently performed
across teams. Even though BHCs have for many years performed stress
tests to one degree or another, they have not been required to report
the results of their testing to the Federal Reserve unless it
specifically requested the information.
The Federal Reserve recently issued a letter to the largest banking
organizations outlining its view on good practices with respect to the
use of stress testing in the context of internal capital adequacy
assessment practices (ICAAP). For example, some areas highlighted in
the letter include how frequent a stress test should be performed, the
minimum time frame that the test should cover, documentation of the
process, involvement of senior management and board of directors, and
types of scenarios and risks to include in such tests. Some BHC
officials believed that stress testing would become an integral part
of future risk management practices and noted that SCAP helped them
see how bank examiners would want them to stress their portfolios in
the future. In anticipation of future action by regulators, many BHCs
were designing at least part of their stress tests along the lines of
SCAP. However, a few BHC officials hoped that future stress tests
would not be performed in the same manner as SCAP, with the largest
institutions tested simultaneously in a largely public setting, but
rather as part of the confidential supervisory review process.
Regulatory Oversight Is to Focus on More Rigorous Stress Testing, but
Examiners Need More Specific Guidance:
Federal Reserve officials stated that going forward, stress tests will
become a fundamental part of the agency's oversight of individual
banks and the financial system. As a result of SCAP, Federal Reserve
officials stated that they are placing greater emphasis on the BHCs'
internal capital adequacy planning through their ICAAP. This
initiative is intended to improve the measurement of firmwide risk and
the incorporation of all risks into firms' capital planning assessment
and planning processes. In addition to enhanced supervisory focus on
these practices across BHCs, stress testing is also a key component of
the Basel II capital framework (Pillar 2).[Footnote 58] Under Pillar
2, supervisory review is intended to help ensure that banks have
adequate capital to support all risks and to encourage that banks
develop and use better risk management practices. All BHCs, including
those adopting Basel II, must have a rigorous process of assessing
capital adequacy that includes strong board and senior management
oversight, comprehensive assessment of risks, rigorous stress testing
and scenario analyses, validation programs, and independent review and
oversight. In addition, Pillar 2 requires supervisors to review and
evaluate banks' internal capital adequacy assessments and monitor
compliance with regulatory capital requirements. The Federal Reserve
wants the large banks to conduct this work for themselves and report
their findings to their senior management and boards of directors.
According to Federal Reserve officials, for BHCs to satisfy the
totality of expectations for ICAAP it may take 18 to 24 months, partly
because the BHCs are taking actions to enhance practices where needed--
including with respect to the use of stress testing and scenario
analyses in internal capital assessments--and the Federal Reserve then
needs to evaluate these actions across a relatively large number of
BHCs.
In addition, the Federal Reserve is finalizing guidance for examiners
to assess the capital adequacy process, including stress testing, for
BHCs. Examiners are expected to evaluate how BHCs' stress tests inform
the process for identifying and measuring risk and decisions about
capital adequacy. Federal Reserve officials stated that examiners are
expected to look closely at BHCs' internal stress test methodologies
and results. In a letter to BHCs, the Federal Reserve also emphasized
that institutions should look at time frames of 2 or more years and
considers losses firmwide. It also suggested that BHCs develop their
own stress test scenarios and then review these scenarios and the
results for appropriate rigor and quantification of risk.
While these are positive steps, examiners do not have specific
criteria for assessing the quality of these tests. For example, the
Federal Reserve has not established criteria for assessing the
severity of the assumptions used to stress BHCs' balance sheets. The
Federal Reserve officials stated that they intend to have technical
teams determine the type of criteria that will be needed to evaluate
these assumptions, but they are in the early planning stages.
Development of such criteria will be particularly helpful in ensuring
the effective implementation of the stress test requirements under the
Dodd-Frank Act. Without specific criteria, Federal Reserve examiners
will not be able to ensure the rigor of BHCs' stress tests--an
important part of the capital adequacy planning. Furthermore, the
absence of such guidance could lead to variations in the intensity of
these assessments by individual examiners and across regional
districts.
Risk Identification and Assessment Infrastructure Needs to be Upgraded
to Improve Oversight:
Following SCAP, regulatory and BHC officials we met with identified
opportunities to enhance both the process and data inputs for
conducting stress testing in the future. This would include processes
for obtaining, analyzing, and sharing data and capabilities for data
modeling and forecasting, which potentially could increase the Federal
Reserve's abilities to assess risks in the banking system. According
to the Federal Reserve, an essential component of this new system will
be a quantitative surveillance mechanism for large, complex financial
institutions that will combine a more firmwide and multidisciplinary
approach for bank supervision. This quantitative surveillance
mechanism will use supervisory information, firm-specific data
analysis, and market-based indicators to identify developing strains
and imbalances that may affect multiple institutions, as well as
emerging risks within specific institutions. This effort by the
Federal Reserve may also improve other areas of supervision which rely
on data and quantitative analysis, such as assessing the process used
by BHC's to determine their capital adequacy, forecasting revenue, and
assessing and measuring risk, which is critical to supervising large,
complex banks. Officials at the Federal Reserve told us that examiners
should be analyzing BHC performances versus their stress test
projections to provide insight into the agency's loss forecasting
approach. Moreover, Federal Reserve officials stated that they are
always looking to increase their analytical capabilities, and they
have recently implemented a new governance structure to address some
of their management information infrastructure challenges. However,
not enough time has passed to determine the extent to which such
measures will improve banking supervision.
In addition, some other deficiencies were found in the data reported
to the Federal Reserve by BHCs using the Y-9C, as well as the Federal
Reserve's ability to analyze the risk of losses pertaining to certain
portfolios that were identified during the SCAP stress test. This led
the Federal Reserve to develop a more robust risk identification and
assessment infrastructure including internally developed models or
purchased analytical software and tools from data vendors. Going
forward, such models and analytics would facilitate improved risk
identification and assessment capabilities and oversight, including
the oversight of systemic risk. Moreover, a risk identification and
assessment system that can gauge risk in the banking sector by
collecting data on a timelier basis is necessary to better ensure the
safety and soundness of the banking industry. Specific areas in which
data collection and risk identification and assessment could be
enhanced include mortgage default modeling to include more analysis of
nontraditional mortgage products, counterparty level exposures,
country and currency exposures, and commodity exposures. An example of
where the Federal Reserve used SCAP to significantly upgrade its
ability to assess risks across large BHCs is the development of a
system that allowed BHCs to submit their securities positions and
market values at a fixed date and apply price shocks. This process was
enhanced during SCAP to facilitate the stress analysis of securities
portfolios held by SCAP BHCs.[Footnote 59] This system allowed the
Federal Reserve to analyze approximately 100,000 securities in a
relatively short time period. The Federal Reserve intends to continue
using this database to receive and analyze updated positions from BHCs.
With other portfolios, the Federal Reserve contracted with outside
data and analytical systems providers. For multifamily loan
portfolios, nonfarm loans, and nonresidential loans with a maturity
beyond 2 years, all of which are subsets of commercial and industrial
loans or commercial real estate portfolios, the Federal Reserve used
internal models and purchased an outside vendor service that allowed
it to estimate losses for these portfolios. For the remaining
commercial portfolios, the Federal Reserve used different existing
models found at both the Federal Reserve and Federal Reserve district
banks and new models developed to meet the needs of SCAP. When
analyzing BHCs' mortgage portfolios, the consumer loans Supervisory
Analytical and Advisory Team provided templates to the BHCs to collect
granular data for such analysis, allowing the system to separate BHCs'
mortgage portfolios into much more granular tranches than would be
possible using data from regulatory filings. The Federal Reserve
further used data from various sources, including a large
comprehensive loan-level database of most mortgages that have been
securitized in the United States to assist in developing its own loss
estimates to benchmark against the BHCs' proprietary estimates.
These examples point to enhancements in the ability to assess risks to
individual firms and across the banking sector that resulted from the
SCAP stress test. The Federal Reserve has made clear that it views
many of these innovations in its ability to assess and model risks and
potential losses as permanent additions to its toolkit, and has also
recognized the need for more timely and granular information to
improve its supervision of BHCs and other institutions. However, the
extent to which these models and tools will be distributed across the
Federal Reserve district banks and other federal banking regulators is
unclear. In addition, as the stress test applied to trading positions
was limited to those BHCs that held trading positions of at least $100
billion as of February 20, 2009, the Federal Reserve has not indicated
that it will roll out its new system to BHCs with smaller trading
positions. The Federal Reserve has taken steps to maintain and enhance
the tools and data used during SCAP. Further, improving the Federal
Reserve's financial data collection and supervisory tools will require
additional resources, training for bank examiners, coordination in the
dissemination of new infrastructure across all U.S. financial
regulators, and, according to a Federal Reserve governor, would
benefit from relief from the Paperwork Reduction Act of 1980 as well.
The Federal Reserve lacks a complete plan on how it will achieve
permanent improvements in its risk identification and assessment
infrastructure, but according to officials, such a plan is in
development. The Federal Reserve has finalized a plan that describes a
governance structure for overseeing large, complex financial
organizations. The plan defines the roles and responsibilities of
various committees and teams within the Federal Reserve that will
carry out its supervisory responsibilities over these organizations.
However, further planning is needed to incorporate lessons learned
from SCAP for addressing data and modeling gaps that existed prior to
the crisis and a structure for disseminating improvements to risk
identification and assessment. Specifically, this plan will also be
critical to addressing improvements to data and modeling
infrastructure in supervising not only large financial holding
companies but also smaller institutions. A fully developed plan would
also consider how to disseminate data, models, and other
infrastructure to the entire Federal Reserve System and bank
regulatory agencies, as well as the newly established Financial
Stability Oversight Council and Treasury's Office of Financial
Research. Without such a plan, the agency runs the risk of not
optimizing its oversight responsibilities, especially in light of its
new duties as the systemic risk regulator under the Dodd-Frank Act.
More Coordination and Communication across Regulators Is Critical for
Understanding Risks to Individual Institutions and Financial Markets:
Another critical lesson from SCAP was the need for robust coordination
and communication among the regulators in examining large, complex
financial institutions. Officials from the regulatory agencies and
BHCs stated that the degree of cooperation among the SCAP regulators
was unprecedented and improved the understanding of the risks facing
the individual BHCs and the financial market. Such coordination and
communication will become increasingly important as banking regulators
increase their oversight role. Even with recent major reform to the
financial regulatory structure, multiple regulatory agencies continue
to oversee the banking industry, and regulators will need to
prioritize efforts to promote coordination and communication among
staff from these agencies so that emerging problematic issues
affecting the financial industry are identified in a timely manner and
effectively addressed.
Going forward, based on our discussions with various SCAP participants
and statements by Federal Reserve officials, including the chairman,
the regulators' experience with SCAP is anticipated to lead to the
expanded use of horizontal examinations and multidisciplinary staff
that will require extensive interagency coordination. Horizontal
examinations may involve multiple regulators and underscore the
importance of effective coordination and communication.
Currently, regulators are conducting horizontal examinations of
internal processes that evaluate the capital adequacy at the 28
largest U.S. BHCs. Their focus is on the use of stress testing and
scenario analyses in ICAAP, as well as how shortcomings in fundamental
risk management practices and governance and oversight by the board of
directors for these processes could impair firms' abilities to
estimate their capital needs. Regulators recently completed the
initial phase of horizontal examinations of incentive compensation
practices at 25 large U.S. BHCs. As part of this review, each
organization was required to submit an analysis of shortcomings or
"gaps" in its existing practices relative to the principles contained
in the proposed supervisory guidance issued by the Federal Reserve in
the fall of 2009 as well as plans--including timetables--for
addressing any weaknesses in the firm's incentive compensation
arrangements and related risk-management and corporate governance
practices. In May 2010, regulators provided the banking organizations
feedback on the firms' analyses and plans. These organizations
recently submitted revised plans to the Federal Reserve for addressing
areas of deficiencies in their incentive compensation programs. In a
June 2010 press release, the Federal Reserve noted that to monitor and
encourage improvements in compensation practices by banking
organizations, its staff will prepare a report after 2010 on trends
and developments in such practices at banking organizations.
Our prior work has found that coordination and communication among
regulatory agencies is an ongoing challenge.[Footnote 60] For example,
in 2007, OCC onsite examiners, as well as officials in headquarters,
told us that coordination issues hampered the Federal Reserve's
horizontal examinations. Also, in 2007, a bank told us that it had
initially received conflicting information from the Federal Reserve,
its consolidated supervisor, and the OCC, its primary bank supervisor,
regarding a key policy interpretation. Officials from the bank also
noted that when the Federal Reserve collected information, it did not
coordinate with OCC, the primary bank examiner of the lead bank,
resulting in unnecessary duplication. We noted that to improve
oversight in the future, regulators will need to work closely together
to expedite examinations and avoid such duplications.
Since the SCAP stress test was concluded, the following examples
highlight ongoing challenges in coordination and communication:
* Officials from OCC and FDIC indicated that they were not always
involved in important discussions and decisions. For example, they
were not involved in the decision to reduce GMAC's SCAP capital
requirement, even though they were significantly involved in
establishing the original capital requirement. Also, FDIC noted that
it was excluded from such decision even though it is the primary
federal bank regulator for GMAC's retail bank (Ally Bank).
* The Federal Reserve held an internal meeting to discuss lessons
learned from SCAP, but has yet to reach out to the other SCAP
regulators. The OCC and FDIC told us that they had not met with the
Federal Reserve as a group to evaluate the SCAP process and document
lessons learned. As a result, the FDIC and OCC did not have an
opportunity to share their views on what aspects of SCAP worked and
did not work, as well as any potential improvements that can be
incorporated into future horizontal reviews or other coordinated
efforts.
* In the recent horizontal examinations, both FDIC and OCC noted that
the interagency process for collaboration--especially in the initial
design stages--was not as effective as it was for SCAP. OCC commented
that more collaboration up front would have been preferable. Also,
FDIC stated that the Federal Reserve did not include it in meetings to
formulate aggregate findings for the horizontal examination of
incentive compensation programs, and it experienced difficulties in
obtaining aggregate findings from the Federal Reserve. The Federal
Reserve commented that the FDIC was involved in the development of
findings for those organizations that control an FDIC-supervised
subsidiary bank and that FDIC has since been provided information on
the findings across the full range of organizations included in the
horizontal review, the majority of which do not control an FDIC-
supervised subsidiary bank.
These continued challenges in ensuring effective coordination and
communication underscore the need for sustained commitment and effort
by the regulators to ensure the inclusion of all relevant agencies in
key discussions and decisions regarding the design, implementation,
and results of multiagency horizontal examinations. As the SCAP
process has shown, active participation by all relevant regulators can
strengthen approaches used by examiners in performing their
supervisory activities. Without continuous coordination and
communication, the regulators will miss opportunities to leverage
perspectives and experiences that could further strengthen the
supervision of financial institutions, especially during horizontal
examinations of financial institutions.
Conclusions:
Publicly reporting a comparison of the actual performance of the SCAP
BHCs and the estimated performance under a more adverse scenario
provides insights into the financial strength of the nation's largest
BHCs. Senior Federal Reserve officials have publicly disclosed select
aggregate information about the performance of the 19 BHCs consistent
with the recommendation in our June 2009 report. Specifically, we
recommended that the Federal Reserve consider periodically disclosing
to the public the performance of the 19 BHCs against the SCAP
estimates during the 2-year period. However, the Federal Reserve has
yet to commit to completing a final analysis that compares the BHCs'
actual performance with the estimated performance under SCAP's more
adverse economic scenario for the entire 2-year period and making this
analysis public. Such an analysis is important for the market and BHCs
to assess the rigor of the stress test methodology. Publicly releasing
the results also would allow the public to gauge the health of the
BHCs that participated in SCAP, which is a strong proxy for the entire
U.S. banking industry. And public disclosure of this analysis could
act as a catalyst for a public discussion of the value of effective
bank risk management and enhance confidence in the regulatory
supervision of financial institutions.
The public release of the stress test methodology and results helped
improve market confidence in the largest BHCs during the recent
financial crisis and provided an unprecedented window into bank
supervision process. Subsequently, the Chairman of the Federal Reserve
and a Federal Reserve governor have publicly stated that greater
transparency should be built into the supervisory process and that
feedback from the public could help increase the integrity of the
supervisory process. Increased transparency can also augment the
information that is available to investors and counterparties of the
institutions tested and enhance market discipline. Despite these
statements, the Federal Reserve and other bank regulators have yet to
start a formal dialogue about this issue, nor have they developed a
plan for integrating public disclosures into the ongoing supervisory
process. Such a plan could detail the types of information that would
benefit the markets if it were publicly released; the planned
methodology for the stress tests, including assumptions; the frequency
with which information would be made public; and the various means of
disseminating the information. Taking into account the need to protect
proprietary information and other market-sensitive information would
be an important part of such a plan. While regulators will undoubtedly
face challenges in determining how best to overcome skepticism about
the potential effects on the financial markets of disclosing sensitive
information on the financial health of banks, the Dodd-Frank Act
requires that the Federal Reserve and certain banks publicly release a
summary of results from periodic stress tests. Without a plan for
enhancing the transparency of supervisory processes and practices,
bank regulators may miss a significant opportunity to further
strengthen market discipline and confidence in the banking industry by
providing investors, creditors, and counterparties with useful
information.
The SCAP stress test shed light on areas for further improvement in
the regulators' bank supervision processes, including oversight of
risk management practices at BHCs. Prior to SCAP, regulatory oversight
of stress tests performed by the BHCs themselves was ineffective.
Specifically, although regulators required stress tests, the
guidelines for conducting them were more than a decade old, and the
individual banks were responsible for designing and executing them.
The Federal Reserve's reviews of the internal stress tests were done
at the discretion of the BHCs' individual supervisory teams and were
not consistently performed. Further, even though BHCs performed stress
tests, they were not required to report the results of their stress
testing to the Federal Reserve without a specific request from
regulators. Post-SCAP, however, the Federal Reserve has stated that
stress testing will now be a fundamental part of their oversight of
individual banks. The Federal Reserve expects to play a more prominent
role in reviewing assumptions, results, and providing input into the
BHCs' risk management practices. While the Federal Reserve has begun
to take steps to augment its oversight, currently Federal Reserve
examiners lack specific criteria for assessing the severity of BHCs'
stress tests. Without specific criteria, Federal Reserve examiners
will not be able to ensure the rigor of BHCs' stress tests.
Furthermore, the absence of such criteria could lead to variations in
the intensity of these assessments by individual examiners and across
regional districts.
The experience with SCAP also showed that regulators needed relevant
and detailed data to improve oversight of individual banks and to
identify and assess risks. As the Federal Reserve and the other
regulators conduct more horizontal reviews, they will need a robust
plan for quantitatively assessing the risk in the banking sector.
Collecting timely data for the annual stress testing and other
supervisory actions will be critical in order to better ensure the
safety and soundness of the banking industry. The Federal Reserve has
finalized a plan that describes a governance structure for overseeing
large, complex financial organizations. However, further planning is
needed to incorporate lessons learned from SCAP for addressing data
and modeling gaps and a structure for disseminating improvements to
risk identification and assessment. Further, efforts to improve the
risk identification and assessment infrastructure will need to be
effectively coordinated with other regulators and the newly
established Financial Stability Oversight Council and Treasury's
Office of Financial Research in order to ensure an effective
systemwide risk assessment. Without fully developing a plan that can
identify BHCs' risks in time to take appropriate supervisory action,
the Federal Reserve may not be well-positioned to anticipate and
minimize future banking problems and ensure the soundness of the
banking system.
Despite the positive coordination and communication experience of the
SCAP stress test, developments since the completion of SCAP have
renewed questions about the effectiveness of regulators' efforts to
strengthen their coordination and communication. For example, on
important issues, such as finalizing GMAC's SCAP capital amount, the
Federal Reserve chose not to seek the views of other knowledgeable
bank regulators. While the Dodd-Frank Act creates formal mechanisms
that require coordination and communication among regulators, the
experiences from SCAP point to the need for a sustained commitment by
each of the banking regulators to enhance coordination and
communication. In particular, ensuring inclusion of relevant agencies
in key discussions and decisions regarding the design, implementation,
and results of multiagency horizontal examinations will be critical.
If regulators do not consistently coordinate and communicate
effectively during horizontal examinations, they run the risk of
missing opportunities to leverage perspectives and experiences that
could further strengthen bank supervision.
Recommendations:
To gain a better understanding of SCAP and inform the use of similar
stress tests in the future, we recommend that the Chairman of the
Federal Reserve direct the Division of Banking Supervision and
Regulation to:
* Compare the performance of the 19 largest BHCs against the more
adverse scenario projections following the completion of the 2-year
period covered in the SCAP stress test ending December 31, 2010, and
disclose the results of the analysis to the public.
* To leverage the lessons learned from SCAP to the benefit of other
regulated bank and thrift institutions, we recommend that the Chairman
of the Federal Reserve in consultation with the heads of the FDIC and
OCC take the following actions:
* Follow through on the Federal Reserve's commitment to improve the
transparency of bank supervision by developing a plan that reconciles
the divergent views on transparency and allows for increased
transparency in the regular supervisory process. Such a plan should,
at a minimum, outline steps for releasing supervisory methodologies
and analytical results for stress testing.
* Develop more specific criteria to include in its guidance to
examiners for assessing the quality of stress tests and how these
tests inform BHCs' capital adequacy planning. These guidelines should
clarify the stress testing procedures already incorporated into
banking regulations and incorporate lessons learned from SCAP.
* Fully develop its plan for maintaining and improving the use of
data, risk identification and assessment infrastructure, and requisite
systems in implementing its supervisory functions and new
responsibilities under the Dodd-Frank Act. This plan should also
ensure the dissemination of these enhancements throughout the Federal
Reserve System and other financial regulators, as well as new
organizations established in the Dodd-Frank Act.
* Take further steps to more effectively coordinate and communicate
among themselves. For example, ensuring that all applicable regulatory
agencies are included in discussions and decisions regarding the
development, implementation, and results of multiagency activities,
such as horizontal examinations of financial institutions.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Federal Reserve, FDIC, OCC,
OTS, and Treasury for review and comment. We received written comments
from the Chairman of the Federal Reserve Board of Governors and the
Assistant Secretary for Financial Stability. These comments are
summarized below and reprinted in appendixes IV and V, respectively.
We also received technical comments from the Federal Reserve, FDIC,
OCC, and Treasury, which we incorporated into the report as
appropriate. OTS did not provide any comments. In addition, we
received technical comments from the Federal Reserve and most of the
19 SCAP BHCs on the accuracy of our tracking of revenues and losses in
2009 for each of the SCAP BHCs and incorporated them into the report
as appropriate.
In its comment letter, the Federal Reserve agreed with all five of our
recommendations for building on the successes of SCAP to improve bank
supervision. The Federal Reserve noted that our recommendations
generally relate to actions it is currently undertaking or planning to
take under the Dodd-Frank Act. It also cited that in coordination with
FDIC and OCC, it would provide a public assessment of BHCs'
performance relative to the loss and preprovision net revenue
estimates under the more adverse scenario, taking into account the
limitations of such an analysis. For our remaining recommendations
related to increased transparency, examiner guidance, risk
identification and assessment, and coordination and communication of
multiagency activities, the Federal Reserve generally noted that it
has taken step in these areas and will continue to consult with the
FDIC and OCC in implementing our recommendations and its new
responsibilities under the Dodd-Frank Act.
While our report recognizes the steps that the Federal Reserve has
taken related to transparency, examiner guidance, risk identification
and assessment, and coordination and communication of multiagency
activities, these areas warrant ongoing attention. For example, as we
note in the report, while the Federal Reserve is in the process of
finalizing examination guidance for reviewing stress tests, examiners
currently do not have specific criteria for assessing the severity of
these tests nor have they coordinated with the other bank regulators.
Until this guidance is completed, examiners will lack the information
needed to fully ensure the rigor of BHCs' stress tests, and the Board
will not be able to fully ensure the consistency of the assessment by
individual examiners. Our report also notes the positive coordination
and communication experience of the SCAP stress test, but we continued
to find specific instances since the completion of SCAP that have
renewed questions about the effectiveness of regulators' efforts to
strengthen their coordination and communication. For instance, while
the Federal Reserve included relevant agencies in key discussions and
decisions regarding the design, implementation, and results of SCAP,
we found that the Federal Reserve missed opportunities to include
other bank regulators when planning more recent horizontal
examinations.
Treasury agreed with our report findings, noting that it appreciated
our acknowledgment that SCAP met its goals of providing a
comprehensive, forward-looking assessment of the balance sheet risks
of the largest banks and increasing the level and quality of capital
held by such banks. It further noted that the unprecedented public
release of the stress test results led to an increase in the market
confidence in the banking system, which aided in improving the capital
adequacy of the largest banks.
We are sending copies of this report to the appropriate congressional
committees; Chairman of the Federal Reserve, the Acting Comptroller of
Currency, Chairman of the FDIC, the Acting Director of the Office of
the Thrift Supervision, and the Secretary of the Treasury. Also, we
are sending copies of this report to the Congressional Oversight
Panel, Financial Stability Oversight Board, the Special Inspector
General for TARP, and other interested parties. In addition, the
report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
Should you or your staff have any questions on the matters discussed
in this report, please contact me at (202) 512-8678 or
williamso@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
letter. GAO staff who made key contributions to this report are listed
in appendix VI.
Signed by:
Orice Williams Brown:
Director, Financial Markets and Community Investment:
List of Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Christopher J. Dodd:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Kent Conrad:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Committee on the Budget:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable David R. Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable John M. Spratt Jr.
Chairman:
The Honorable Paul Ryan:
Ranking Member:
Committee on the Budget:
House of Representatives:
The Honorable Barney Frank:
Chairman:
The Honorable Spencer Bachus:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Sander M. Levin:
Chairman:
The Honorable Dave Camp:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this report were to (1) describe the process used to
design and conduct the stress test and participants views' of the
process, (2) describe the extent to which the stress test achieved its
goals and compare its estimates with the bank holding companies' (BHC)
actual results, and (3) identify the lessons regulators and BHCs
learned from the Supervisory Capital Assessment Program (SCAP) and
examine how each are using those lessons to enhance their risk
identification and assessment practices.
To meet the report's objectives, we reviewed the Board of Governors of
the Federal Reserve System's (Federal Reserve) The Supervisory Capital
Assessment Program: Design and Implementation (SCAP design and
implementation document) dated April 24, 2009, and The Supervisory
Capital Assessment Program: Overview of Results (SCAP results
document) dated May 7, 2009. We analyzed the initial stress test data
that the Federal Reserve provided to each BHC, the subsequent
adjustments the Federal Reserve made to these estimates, and the
reasons for these adjustments. We reviewed BHC regulatory filings such
as the Federal Reserve's 2009 Consolidated Financial Statements for
Bank Holding Companies---FR Y-9C (Y-9C);[Footnote 61] company
quarterly 10-Qs and annual 10-Ks; speeches and testimonies regarding
SCAP and stress testing; BHCs' presentations to shareholders and
earnings reports; bank supervision guidance issued by the Federal
Reserve, Office of the Comptroller of the Currency (OCC), and the
Federal Deposit Insurance Corporation (FDIC); and documents regarding
the impact of SCAP and the financial crisis and proposed revisions to
bank regulation and supervisory oversight.[Footnote 62] To further
understand these documents and obtain different perspectives on the
SCAP stress test, we interviewed officials from the Federal Reserve,
OCC, FDIC, and the Office of the Thrift Supervision, as well as
members of the multidisciplinary teams created to execute SCAP.
[Footnote 63]
We also collected data from SNL Financial--a private financial
database that contains publicly filed regulatory and financial
reports, including those of the BHCs involved in SCAP--in order to
compare the BHCs' actual performance in 2009 against the regulators' 2-
year SCAP loss estimates and GAO's 1-year pro rata loss estimates. To
obtain additional background information regarding the tracking of the
BHCs, perspectives on their performance, anticipated loan losses, and
the success of SCAP in achieving its goals, we interviewed relevant
officials (e.g., chief risk officers and chief financial officers)
from 11 of the 19 BHCs that participated in the SCAP stress test. The
BHCs we interviewed were the American Express Company; Bank of America
Corporation; The Bank of New York Mellon Corporation; BB&T
Corporation; Citigroup Inc.; GMAC LLC;[Footnote 64] The Goldman Sachs
Group, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; Regions Financial
Corporation; and Wells Fargo & Company. We selected these BHCs to
reflect differences in size, types of financial services provided,
geographic location, primary bank regulator, and participation in the
Troubled Asset Relief Program (TARP). In addition, we met with credit
rating agency officials from the Standard and Poor's Corporation,
Moody's Corporation, and Fitch Ratings Inc. for their perspective on
SCAP and their own stress test practices. To more completely
understand the execution of SCAP, we completed a literature search of
stress tests conducted by others--for example, the Committee on
European Banking Supervisors and the International Monetary Fund. We
also reviewed relevant credit rating agency reports and the reports of
other oversight bodies such as the Congressional Oversight Panel and
the Special Inspector General for the Troubled Asset Relief Program on
topics related to stress testing and TARP. We also reviewed our past
work on the bank supervisory process and SCAP.[Footnote 65]
In addition, to track the actual performance of the 19 BHCs, we
collected data from several sources. We then compared the BHCs' actual
performance to the December 31, 2008, capital levels presented in SCAP
and the projections made under the more adverse scenario for estimated
losses for loans, securities (available for sale and held to
maturity), trading and counterparty, and resources other than capital
to absorb losses.[Footnote 66] Our primary source for SCAP estimates
was the May 7, 2009, SCAP results document, which contained the
estimates for each of the 19 BHCs and aggregate data for all BHCs. We
also reviewed the confidential April 24, 2009, and May 5, 2009,
presentations that the SCAP regulators made to each of the 19 BHCs to
identify estimates of preprovision net revenue (PPNR) and changes in
allowance for loan and lease losses (ALLL) for the 2 years ended 2010.
Our primary source for the actual results at the BHCs was the Federal
Reserve's Y-9C. In doing so, we used the SNL Financial database to
extract data on the Y-9C and the Securities and Exchange Commission
forms 10-K and 10-Q. These data were collected following the close of
the fourth quarter of 2009, the halfway point of the SCAP's 2-year
time frame.
Since losses were not estimated on a quarter-by-quarter or yearly
basis but projected for the full 2-year period, we assumed that losses
and revenue estimates under the more adverse scenario were distributed
at a constant rate across the projection period. Thus, we compared the
actual 2009 year end values with half of the Federal Reserve's 2-year
SCAP projections. This methodology has some limitations because
losses, expenses, revenues, and changes to reserves are historically
unevenly distributed and loss rates over a 2-year period in an
uncertain economic environment can follow an inconsistent path.
However, the Federal Reserve, OCC, credit rating agencies, an SNL
Financial analyst, and most of the BHCs we interviewed who are
tracking performance relative to SCAP estimates are also using the
same methodology. We assessed the reliability of the SNL Financial
database by following GAO's best practices for data reliability and
found that the data was sufficiently reliable for our purposes.
[Footnote 67] To confirm the accuracy of our BHC tracking data, we
shared our data with the Federal Reserve and the 19 SCAP BHCs. We
received comments and incorporated them as appropriate.
Some of the data that we collected were not in a form that was
immediately comparable to the categories used in the SCAP results, and
we had to make adjustments in order to make the comparison. For tier 1
common capital, most asset categories, and resources other than
capital to absorb losses, we had to find a methodology suited to
aggregating these data so that we could compare it to the
corresponding SCAP data. For example, net-charge offs for the various
loan categories are broken out into more subcategories in the Y-9C
than those listed in the SCAP results. In addition, we calculated
"Resources Other than Capital to Absorb Losses" to correspond to the
SCAP definition of PPNR minus the change in ALLL, which required
obtaining data from multiple entries within the Y-9C. When calculating
noninterest expense we removed the line item for goodwill impairment
losses because this item was not included in the SCAP regulators'
projections. We also used the calculation of a change in ALLL until
December 31, 2009. But the SCAP regulators considered an increase in
ALLL over the full 2-year period to be a drain on resources, because
the provisions made to increase the ALLL balance would not be
available to absorb losses during the 2-year SCAP time frame. This
notion creates a problem in using the formula for 1-year tracking
purposes because an increase in ALLL during 2009 would require
provisions for that increase, but those added reserves could
ultimately be used to absorb losses during 2010. To maintain
consistency, our calculation considers ALLL increases during 2009 to
be a drain on resources, but we recognize that this money could act as
a resource to absorb losses rather than a drain on those resources.
We faced an additional limitation pertaining to the ALLL calculation
and a challenge with regard to the treatment of trading and
counterparty revenues. In our review of SCAP documentation, we found
that SCAP regulators used two different ALLL calculations--1
calculation for 4 of the BHCs that included a reserve for off-balance
sheet items and another for the remaining 15 BHCs that did not include
off-balance sheet reserves. The Federal Reserve confirmed that there
were two different calculations that were not adjusted for
consistency. In order to be consistent across the BHCs, we applied the
same methodology that the regulators used for 15 of the BHCs to the 4
that remained. The treatment of trading and counterparty revenue
created a challenge because the data in the Y-9C includes both
customer derived revenue from transactions for BHCs that operate as
broker-dealers and gains (or losses) from proprietary trading and
certain associated expenses. These items are presented only in net
form in the Y-9C. However, for the five BHCs (Bank of America
Corporation; Citigroup, Inc.; Goldman Sachs Group, Inc.; JPMorgan
Chase & Co.; and Morgan Stanley) that had their trading portfolios
stressed, the trading and counterparty line is based on projections of
gains (losses) from proprietary trading, but PPNR (specifically
noninterest revenue) is based on gains from customer derived revenue
from transactions for BHCs that operate as broker-dealers. Because we
could not segregate these items based on the Y-9C, we have included
the net amount in both the trading and counterparty and noninterest
income line items. This means that the net amount of the trading gains
or losses as reported in the Y-9C are included in two places in our
tracking table for those five BHCs. For the remaining 14 BHCs, we
included the entire line item in noninterest income, as that is where
it was located in the SCAP projections.
Table 6 shows the items we used to calculate tier 1 capital, asset
losses, PPNR, and ALLL as of December 31, 2009 and the specific
sources we used. We also included specific references to the sources
we used. Some elements within the table required a more detailed
aggregation or calculation and are therefore explained further in
tables 7 and 8 below. For reporting these capital measures and asset
balances for the year ending December 31, 2008, we generally relied on
the figures published in various SCAP documents.
Table 6: Items Used to Calculate Tier 1 Capital, Asset Losses, PPNR,
and ALLL:
Capital measure: Tier 1 capital;
Actual at 12/31/09 and source: From line 11 ("tier 1 capital") of
Schedule HC-R (page 40) of the FR Y-9C.
Capital measure: Tier 1 common capital;
Actual at 12/31/09 and source: See table 7.
Capital measure: Risk-weighted assets;
Actual at 12/31/09 and source: From line 62 ("total risk-weighted
assets") of Schedule HC-R (page 43) of the FR Y-9C.
Capital measure: Tier 1 risk-based ratio;
Actual at 12/31/09 and source: Calculated as tier 1 capital divided by
risk-weighted assets.
Capital measure: Tier 1 common capital ratio;
Actual at 12/31/09 and source: Calculated as tier 1 common capital
divided by risk-weighted assets.
Asset category[A]: First-lien mortgages;
Actual at 12/31/09 and source: See table 8.
Asset category[A]: Second/junior lien mortgages;
Actual at 12/31/09 and source: See table 8.
Asset category[A]: Commercial and industrial loans;
Actual at 12/31/09 and source: See table 8.
Asset category[A]: Commercial real estate loans;
Actual at 12/31/09 and source: See table 8.
Asset category[A]: Credit card loans;
Actual at 12/31/09 and source: See table 8.
Asset category[A]: Securities (available for sale and held to
maturity);
Actual at 12/31/09 and source: Calculated as: total of line 6a
("realized gains (losses) on held-to-maturity securities") and line 6b
("realized gains (losses) on available-for-sale securities") of
Schedule HI (page 2) of the FR Y-9C.
Asset category[A]: Trading and counterparty;
Actual at 12/31/09 and source: For the 5 BHCs that had their trading
and counterparty portfolio stressed: line 5c ("trading revenue") of
Schedule HI (page 1) of the FR Y-9C. For all other BHCs, this line
item was left blank.
Asset category[A]: Other;
Actual at 12/31/09 and source: See table 8.
Asset category[A]: One-time items (included in "Other" in SCAP
results);
Actual at 12/31/09 and source: If one-time losses (gains) could be
identified, they were located here and removed from the respective
category above. This only applies to State Street Corporation.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL)[B]:
Preprovision net revenue (PPNR)[C]: Net interest income (expense);
Actual at 12/31/09 and source: Line 3 ("net interest income") of
Schedule HI (page 1) of the FR Y-9C.
Preprovision net revenue (PPNR)[C]: Noninterest income;
Actual at 12/31/09 and source: Line 5m ("total noninterest income") of
Schedule HI (page 2) of the FR Y-9C.
Preprovision net revenue (PPNR)[C]: Less noninterest expense;
Actual at 12/31/09 and source: Calculated as: line 7e ("total
noninterest expense") less Line 7c (1) ("goodwill impairment losses")
of Schedule HI (page 2) of the FR Y-9C.
Change in allowance for loan and lease losses (ALLL)[D]: ALLL at
12/31/08;
Actual at 12/31/09 and source: Line 1 ("balance most recently reported
at the end of previous year") of Part II of the Schedule HI-B (page 7)
of the 12/31/09 FR Y-9C.
Change in allowance for loan and lease losses (ALLL)[D]: ALLL at
12/31/09;
Actual at 12/31/09 and source: Line 7 ("balance at end of current
period") of Part II of the Schedule HI-B (page 7) of the 12/31/09 FRY-
9C.
Source: GAO analysis of Federal Reserve 2009 Y-9C information.
[A] Calculated as the total of the losses (gains) below. Categories
that were n/a in the SCAP were included in this total.
[B] Calculated as Total PPNR less the change in ALLL.
[C] Calculated as net interest income (expense) plus noninterest
income less noninterest expense.
[D] Calculated as ALLL at 12/31/09 less ALLL at 12/31/08.
[End of table]
Table 7 shows our methodology for calculating tier 1 common capital,
including the part of the Y-9C in which the data can be found.
Currently, there is no defined regulatory method for calculating tier
1 common capital, and it is not a required data field for BHCs to file
in their Y-9C submissions. As a result, we developed a formula
consistent with the Federal Reserve's by reviewing the guidance
available in the SCAP design and implementation and SCAP results
documents and consulting with SNL Financial regarding its methodology.
Table 7: Tier 1 Common Capital Calculation:
Location within the FR Y 9-C: Line 11 of Schedule HC-R (page 40);
Tier 1 common capital calculation: Tier 1 capital.
Location within the FR Y 9-C: Line 23 of Schedule HC (page 12);
Tier 1 common capital calculation: Less: perpetual preferred stock and
related surplus.
Location within the FR Y 9-C: Line 6a of Schedule HC-R (page 40);
Tier 1 common capital calculation: Less: qualifying Class A
noncontrolling (minority) interests in consolidated subsidiaries.
Location within the FR Y 9-C: Line 6b of Schedule HC-R (page 40);
Tier 1 common capital calculation: Less: qualifying restricted core
capital elements (other than cumulative perpetual preferred stock).
Location within the FR Y 9-C: Line 6c of Schedule HC-R (page 40);
Tier 1 common capital calculation: Less: qualifying mandatory
convertible preferred securities of internationally active bank
holding companies.
Location within the FR Y 9-C: Line 1 of the "notes to the balance;
sheet-other" (page 49);
Tier 1 common capital calculation: Less: amount of excess restricted
core capital elements included in Schedule HC-R, item 10.
Location within the FR Y 9-C: Line 5 of Schedule HC-R (page 40);
Tier 1 common capital calculation: Add: nonqualifying perpetual
preferred stock.
Tier 1 common capital calculation: Total = Tier 1 common capital.
Source: Federal Reserve 2009 Y-9C documentation.
[End of table]
Table 8 provides a crosswalk for the asset classification we used to
group the various charge-off categories listed in the Y-9C.
Table 8: Crosswalk of Y-9C Net Charge-Offs and Asset Classifications
to Classifications Used by SCAP:
Y-9C classification: 1. Loans secured by real estate: a. Construction,
land development, and other land loans in domestic offices: (1) One to
four family residential construction loans;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Construction.
Y-9C classification: 1. Loans secured by real estate: a. Construction,
land development, and other land loans in domestic offices: (2) Other
construction loans and all land development and other land loans;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Construction.
Y-9C classification: 1. Loans secured by real estate: b. Secured by
farmland in domestic offices;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 1. Loans secured by real estate: c. Secured by
one to four family residential properties in domestic offices: (1)
Revolving, open-end loans secured by one to four family residential
properties under lines of credit;
Classification used in GAO analysis: Overall category: Second/junior
lien;
Classification used in GAO analysis: Primary category: Second/junior
lien;
Classification used in GAO analysis: Sub-category: Home equity line of
credit.
Y-9C classification: 1. Loans secured by real estate: c. Secured by
one to four family residential properties in domestic offices: (2)
Closed-end loans secured by one to four family residential properties
in domestic offices: (a) Secured by first liens;
Classification used in GAO analysis: Overall category: First lien;
Classification used in GAO analysis: Primary category: First lien;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 1. Loans secured by real estate: c. Secured by
one to four family residential properties in domestic offices: (2)
Closed-end loans secured by one to four family residential properties
in domestic offices: (b) Secured by junior liens;
Classification used in GAO analysis: Overall category: Second/junior
lien;
Classification used in GAO analysis: Primary category: Second/junior
lien;
Classification used in GAO analysis: Sub-category: Closed-end junior
liens.
Y-9C classification: 1. Loans secured by real estate: d. Secured by
mutlifamily (five or more) residential properties in domestic offices;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Multifamily.
Y-9C classification: 1. Loans secured by real estate: e. Secured by
nonfarm nonresidential properties in domestic offices: (1) Loans
secured by owner-occupied nonfarm nonresidential properties;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Nonfarm,
nonresidential.
Y-9C classification: 1. Loans secured by real estate: e. Secured by
nonfarm nonresidential properties in domestic offices: ((2) Loans
secured by other nonfarm nonresidential properties;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Nonfarm,
nonresidential.
Y-9C classification: 1. Loans secured by real estate: f. In foreign
offices;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 2. Loans to depository institutions and
acceptances of other banks: a. To U.S. banks and other U.S. depository
institutions;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 2. Loans to depository institutions and
acceptances of other banks: b. To foreign banks;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 3. Loans to finance agricultural production and
other loans to farmers;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification 4. Commercial and industrial loans: a. To U.S.
addresses (domicile);
Classification used in GAO analysis: Overall category: Commercial and
industrial;
Classification used in GAO analysis: Primary category: Commercial and
industrial;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification 4. Commercial and industrial loans: b. To non-U.S.
addresses (domicile);
Classification used in GAO analysis: Overall category: Commercial and
industrial;
Classification used in GAO analysis: Primary category: Commercial and
industrial;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 5. Loans to individuals for household, family,
and other personal expenditures: a. Credit cards;
Classification used in GAO analysis: Overall category: Credit cards;
Classification used in GAO analysis: Primary category: Credit cards;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 5. Loans to individuals for household, family,
and other personal expenditures: b. Other (includes single payment,
installment, all student loans, and revolving credit plans other than
credit cards);
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other consumer;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 6. Loans to foreign governments and official
institutions;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 7. All other loans;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 8. Lease financing receivables: a. Leases to
individuals for household, family, and other personal expenditures;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other consumer;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 8. Lease financing receivables: b. All other
leases;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Source: Federal Reserve 2009 Schedule HI-B of the Y-9C.
Note: N/a means not applicable.
[End of table]
To ensure additional comparability with SCAP, we attempted to identify
any unique circumstances that could skew the results. For example,
after we shared our initial tracking estimates with the 19 BHCs, one
BHC had identified an issue with our calculation of tier 1 common
capital that resulted from the way information is reported on the Y-
9C. After discussing the issue with the BHC and verifying their
explanation, we adjusted our calculation to more accurately reflect
their position. Another BHC also had a one-time charge that had been
included in the "Other" loss category, and we decided to segregate
this item as a separate line item. We have also submitted our tracking
spreadsheet to the Federal Reserve and to each BHC to give them an
opportunity to provide input and ensure the accuracy and comparability
of our numbers. Appropriate adjustments to 2009 numbers based on
information received from the Federal Reserve and individual BHCs are
noted, where applicable, in the tables in appendix III.
Some items that impact precise comparisons between actual results and
the pro rata estimates are disclosed in our footnotes, rather than as
adjustments to our calculations. For example, the stress test was
applied to loan and other asset portfolios as of December 31, 2008,
without including a calculation for ongoing banking activities.
Because the Y-9C data includes ongoing activity as of the date of the
report, the actual results are slightly different than the performance
of the stressed assets as the BHCs were treated as liquidating
concerns rather than going concerns in the SCAP stress test.
Distinguishing between the gains (losses) from legacy assets and those
that resulted from new assets is not possible using public data. Other
examples are that SCAP did not include the impact of the owned debt
value adjustment or one-time items (occurring subsequent to SCAP) in
their projections of PPNR.[Footnote 68] As credit default swap spreads
narrowed in 2009,[Footnote 69] liability values increased at most
banks, causing a negative impact on revenue at those banks that chose
to account for their debt at fair value; but these losses were not
included in the SCAP estimates. One-time items, such as sales of
business lines, were also not included in the SCAP estimates of PPNR,
as these events occurred subsequent to the stress test and, in part,
could not be fully predicted as a part of SCAP. Rather than remove the
losses from the owned debt value adjustments and the gains (or losses)
due to one-time items from the BHCs' 2009 PPNR results, we disclosed
the amounts in footnotes for the applicable BHCs. We chose this
treatment so that PPNR would reflect actual results at the BHCs, while
still disclosing the adjustments needed for more precise comparability
to SCAP.
We identified the TARP status of each of the 19 BHCs that participated
in SCAP by reviewing data from the Treasury's Office of Financial
Stability's TARP Transactions Report for the Period Ending September
22, 2010 (TARP Transactions Report) and the SCAP results document. We
used the SCAP results document to identify BHCs that were required to
raise capital. The TARP Transactions Report, was then used to identify
the program under which TARP funds were received (if any), the amount
of funds received, capital repayment date, amount repaid, and warrant
disposition date and to determine whether the warrants were
repurchased or sold by Treasury in a public offering.
To gain a better understanding of future potential losses, we
determined the percentage of BHCs' total loans that are either
nonaccrual or more than 90 days past due using Y-9C data from the SNL
Financial database.[Footnote 70] We used quarterly data for the period
2007 through 2009 on nonaccrual loans and past due balances of more
than 90 days, for each of the BHCs. We aggregated the data into the
same six loan categories used in SCAP: first-lien mortgages, second/
junior-lien mortgages, commercial and industrial loans, commercial
real estate loans, credit card balances, and "Other." (See tables 8
and 9 for details.) Once the data were aggregated, we divided that
data by the applicable total loan balance for each category at each
point in time (i.e., quarterly basis). One limitation is that Y-9C
data were not available for all periods for four of the BHCs (American
Express Company; GMAC LLC; The Goldman Sachs Group, Inc.; and Morgan
Stanley) because they had recently became BHCs.[Footnote 71] As a
result, we did not include these BHCs in the calculation during those
periods where their Y-9Cs were not available (fourth quarter of 2008
and earlier for all except GMAC LLC, which also did not have a Y-9C in
the first quarter of 2009).
We collected Y-9C data from the SNL Financial database to calculate
the loan loss rates across BHCs with more than $1 billion of assets
and compare the 19 BHCs with the indicative loss rates provided by the
SCAP regulators. We used annual data for the year ended December 31,
2009, on loan charge-offs. We also used average total loan balances.
In the Y-9C total loan balances were categorized somewhat differently
from charge-offs. Table 9 provides a crosswalk for the asset
classification. We aggregated loan balance data into the same
categories that were used in the indicative loss rate table in SCAP:
first-lien mortgages, prime mortgages, Alt-A mortgages, subprime
mortgages, second/junior lien mortgages, closed-end junior liens, home
equity lines of credit, commercial and industrial loans, commercial
real estate loans, construction loans, multifamily loans, nonfarm
nonresidential loans, credit card balances, other consumer, and other
loans. Once the data were aggregated into these categories, we divided
the net charge-offs by the applicable average loan balance. This
calculation showed the loss rate for each category (e.g., first-lien
mortgages and commercial real estate) for the year ended December 31,
2009. This methodology was applied to calculate the loss rates for the
19 SCAP BHCs and all BHCs with more than $1 billion of assets,
respectively. Because those institutions had recently converted to
being BHCs, Y-9C data on loan balances was not available for the
fourth quarter of 2008 for American Express Company; The Goldman Sachs
Group, Inc.; and Morgan Stanley, and was not available for GMAC LLC
for both the first quarter of 2009 and the fourth quarter of 2008.
Therefore, we approximated the loan balances in these periods for GMAC
LLC and American Express Company based on their Form 10-Q for these
time periods. Because The Goldman Sachs Group, Inc. and Morgan Stanley
have considerably smaller loan balances, in general, than the other
BHCs; the fourth quarter of 2008 balance was not approximated for
these BHCs. Instead, the average loan balance was simply based on the
available data (e.g., first quarter of 2009 through fourth quarter of
2009).
Table 9: Crosswalk of Y-9C Loans and Lease Financing Receivables to
and Classifications used by SCAP:
Y-9C classification: 1. Loans secured by real estate: a. Construction,
land development, and other land loans in domestic offices: (1) One to
four family residential construction loans;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Construction.
Y-9C classification: 1. Loans secured by real estate: a. Construction,
land development, and other land loans in domestic offices: (2) Other
construction loans and all land development and other land loans;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Construction.
Y-9C classification: 1. Loans secured by real estate: b. Secured by
farmland;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 1. Loans secured by real estate: c. Secured by
one to four family residential properties: (1) Revolving, open-end
loans secured by one to four family residential properties and
extended under lines of credit;
Classification used in GAO analysis: Overall category: Second/junior
lien;
Classification used in GAO analysis: Primary category: Second/junior
lien;
Classification used in GAO analysis: Sub-category: Home equity lines
of credit.
Y-9C classification: 1. Loans secured by real estate: c. Secured by
one to four family residential properties: (2) Closed-end loans
secured by one to four family residential properties: (a) Secured by
first liens;
Classification used in GAO analysis: Overall category: First lien;
Classification used in GAO analysis: Primary category: First lien;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 1. Loans secured by real estate: c. Secured by
one to four family residential properties: (2) Closed-end loans
secured by one to four family residential properties: (b) Secured by
junior liens;
Classification used in GAO analysis: Overall category: Second/junior
lien;
Classification used in GAO analysis: Primary category: Second/junior
lien;
Classification used in GAO analysis: Sub-category: Closed-end junior
liens.
Y-9C classification: 1. Loans secured by real estate: d. Secured by
mutlifamily (five or more) residential properties;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Multifamily.
Y-9C classification: 1. Loans secured by real estate: e. Secured by
nonfarm nonresidential properties: (1) Loans secured by owner-occupied
nonfarm nonresidential properties;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Nonfarm,
nonresidential.
Y-9C classification: 1. Loans secured by real estate: e. Secured by
nonfarm nonresidential properties: (2) Loans secured by other nonfarm
nonresidential properties;
Classification used in GAO analysis: Overall category: Commercial real
estate;
Classification used in GAO analysis: Primary category: Commercial real
estate;
Classification used in GAO analysis: Sub-category: Nonfarm,
nonresidential.
Y-9C classification: 2. Loans to depository institutions and
acceptances of other banks: a. To U.S. banks and other U.S. depository
institutions;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 2. Loans to depository institutions and
acceptances of other banks: b. To foreign banks;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 3. Loans to finance agricultural production and
other loans to farmers;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 4. Commercial and industrial loans: a. To U.S.
addresses (domicile);
Classification used in GAO analysis: Overall category: Commercial and
industrial;
Classification used in GAO analysis: Primary category: Commercial and
industrial;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 4. Commercial and industrial loans: b. To non-
U.S. addresses (domicile);
Classification used in GAO analysis: Overall category: Commercial and
industrial;
Classification used in GAO analysis: Primary category: Commercial and
industrial;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 6. Loans to individuals for household, family,
and other personal expenditures: a. Credit cards;
Classification used in GAO analysis: Overall category: Credit cards;
Classification used in GAO analysis: Primary category: Credit cards;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 6. Loans to individuals for household, family,
and other personal expenditures: b. Other revolving credit plans;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other consumer;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 6. Loans to individuals for household, family,
and other personal expenditures: c. Other consumer (includes single
payment, installment, and all student loans);
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other consumer;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 7. Loans to foreign governments and official
institutions (including foreign central banks);
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 9. a. Loans for purchasing and carrying
securities (secured and unsecured);
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 9. b. All other loans;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 10. Lease financing receivables (net of unearned
income): a. Leases to individuals for household, family, and other
personal expenditures;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other consumer;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 10. Lease financing receivables (net of unearned
income): b. All other leases;
Classification used in GAO analysis: Overall category: Other;
Classification used in GAO analysis: Primary category: Other loans;
Classification used in GAO analysis: Sub-category: n/a.
Y-9C classification: 11. Less: Any unearned income on loans reflected
in items 1-9 above;
Classification used in GAO analysis: Overall category: [A];
Classification used in GAO analysis: Primary category: [A];
Classification used in GAO analysis: Sub-category: [A].
Source: Federal Reserve 2009 Schedule HC-C of the Y-9C.
Notes: Foreign office real estate was also included in our calculation
of the total loans, but is not distinguishable in the table above. We
pulled it directly from the SNL Financial database. This amount
equates to the difference, in Schedule HC-C, between line item 1 for
the "Consolidated" and "In Domestic Offices" columns (these columns
are not depicted above). The classification of these loans in our
calculations was as "Other" and the primary category was "Other loans."
N/a means not applicable.
[A] For calculations for the 19 SCAP BHCs, unearned income was
distributed to all loan balances based on the percent that each line
item represented of total loans for that BHC (excludes lease financing
receivables). For calculations for all BHCs with total assets greater
than $1 billion, unearned income was distributed to the aggregate
balances for each line item based on the respective percentage that
each balance represented of the total.
[End of table]
We conducted this performance audit from August 2009 to September 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Status of Bank Holding Companies' TARP Investments as
September 22, 2010:
Twelve of the 19 bank holding companies (BHC) that participated in the
Supervisory Capital Assessment Program (SCAP) had redeemed their
Troubled Asset Relief Program (TARP) investments and had their
warrants disposed of as of September 22, 2010, and most of them were
not required to raise capital under SCAP (table 10). Six of the 19
BHCs tested under SCAP have not repaid TARP investments or disposed of
warrants, and one, MetLife, Inc., did not receive any TARP
investments. BHCs participating in SCAP must follow specific criteria
to repay TARP funds. In approving applications from participating
banks that want to repay TARP funds, the Federal Reserve considers
various factors. Some of these factors[Footnote 72] include whether
the banks can demonstrate an ability to access the long-term debt
market without relying on the Federal Deposit Insurance Corporation's
(FDIC) Temporary Liquidity Guarantee Program and whether they can
successfully access the public equity markets, remain in a position to
facilitate lending, and maintain capital levels in accord with
supervisory expectations.[Footnote 73] BHCs intending to repay TARP
investments must have post repayment capital ratios that meet or
exceed SCAP requirements.
Table 10: Status of TARP Investments for the 19 BHCs Participating in
SCAP, as of September 22, 2010:
BHC that was not a recipient of TARP funding:
Bank holding company: MetLife, Inc.;
Required to raise capital under SCAP?: No;
Type of TARP received: n/a;
Capital amount received: n/a;
Capital repayment date: n/a;
Capital amount repaid: n/a;
Warrant disposition date: n/a;
Warrants repurchased (R) or sold via auction (A)?[A]: n/a.
BHCs that were recipients of TARP funding and have exited TARP:
Bank holding company: American Express Company;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP[B];
Capital amount received: $3.4 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $3.4 billion;
Warrant disposition date: 07/29/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: Bank of America Corporation;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $25.0 billion;
Capital repayment date: 12/09/09;
Capital amount repaid: $25.0 billion;
Warrant disposition date: 03/03/10;
Warrants repurchased (R) or sold via auction (A)?[A]: A.
Bank holding company: Bank of America Corporation;
Required to raise capital under SCAP?: BHC that was not a recipient of
TARP funding: Yes;
Type of TARP received: TIP[C];
Capital amount received: $20.0 billion;
Capital repayment date: 12/09/09;
Capital amount repaid: $20.0 billion;
Warrant disposition date: 03/03/10;
Warrants repurchased (R) or sold via auction (A)?[A]: A.
Bank holding company: BB&T Corporation;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $3.1 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $3.1 billion;
Warrant disposition date: 07/22/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: The Bank of New York Mellon Corporation;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $3.0 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $3.0 billion;
Warrant disposition date: 08/05/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: Capital One Financial Corporation;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $3.6 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $3.6 billion;
Warrant disposition date: 12/03/09;
Warrants repurchased (R) or sold via auction (A)?[A]: A.
Bank holding company: The Goldman Sachs Group, Inc.;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $10.0 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $10.0 billion;
Warrant disposition date: 07/22/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: JPMorgan Chase & Co.;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $25.0 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $25.0 billion;
Warrant disposition date: 12/10/09;
Warrants repurchased (R) or sold via auction (A)?[A]: A.
Bank holding company: Morgan Stanley;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $10.0 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $10.0 billion;
Warrant disposition date: 08/12/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: PNC Financial Services Group, Inc;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $7.6 billion;
Capital repayment date: 02/02/10;
Capital amount repaid: $7.6 billion;
Warrant disposition date: 04/29/10;
Warrants repurchased (R) or sold via auction (A)?[A]: A.
Bank holding company: State Street Corporation;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $2.0 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $2.0 billion;
Warrant disposition date: 07/08/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: U.S. Bancorp;
Required to raise capital under SCAP?: No;
Type of TARP received: CPP;
Capital amount received: $6.6 billion;
Capital repayment date: 06/17/09;
Capital amount repaid: $6.6 billion;
Warrant disposition date: 07/15/09;
Warrants repurchased (R) or sold via auction (A)?[A]: R.
Bank holding company: Wells Fargo & Company;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $25.0 billion;
Capital repayment date: 12/23/09;
Capital amount repaid: $25.0 billion;
Warrant disposition date: 05/21/10;
Warrants repurchased (R) or sold via auction (A)?[A]: A.
BHCs that have not fully repaid TARP funding or disposed of warrants:
Bank holding company: Citigroup Inc.[D];
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $25.0 billion;
Capital repayment date: [Empty];
Capital amount repaid: [Empty];
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Bank holding company: Citigroup Inc.[D];
Required to raise capital under SCAP?: Yes;
Type of TARP received: TIP;
Capital amount received: $20.0 billion;
Capital repayment date: 12/23/09;
Capital amount repaid: $20.0 billion;
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Bank holding company: Fifth Third Bancorp;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $3.4 billion;
Capital repayment date: [Empty];
Capital amount repaid: [Empty];
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Bank holding company: GMAC LLC[E];
Required to raise capital under SCAP?: Yes;
Type of TARP received: AIFP;
Capital amount received: $16.3 billion;
Capital repayment date: [Empty];
Capital amount repaid: [Empty];
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Bank holding company: KeyCorp;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $2.5 billion;
Capital repayment date: [Empty];
Capital amount repaid: [Empty];
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Bank holding company: Regions Financial Corporation;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $3.5 billion;
Capital repayment date: [Empty];
Capital amount repaid: [Empty];
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Bank holding company: SunTrust Banks, Inc.;
Required to raise capital under SCAP?: Yes;
Type of TARP received: CPP;
Capital amount received: $4.9 billion;
Capital repayment date: [Empty];
Capital amount repaid: [Empty];
Warrant disposition date: [Empty];
Warrants repurchased (R) or sold via auction (A)?[A]: [Empty].
Sources: Federal Reserve's SCAP results document and Treasury's TARP
Transactions Report for the Period Ending September XX, 2010.
Note: N/a means not applicable since MetLife, Inc. did not receive any
TARP funding.
[A] "R" indicates that the warrants were repurchased by the financial
institution via negotiations with Treasury. "A" indicates that
Treasury sold the warrants in a registered public auction.
[B] The Capital Purchase Program (CPP) is a program in which Treasury
invests in preferred securities issued by qualified financial
institutions.
[C] Treasury created the Targeted Investment Program (TIP) to
stabilize the financial system by making investments in institutions
that are determined to be critical to the functioning of the financial
system.
[D] As part of an exchange offer designed to strengthen Citigroup
Inc.'s capital, in June 2009, Treasury agreed to exchange its $25
billion of CPP preferred stock in Citigroup for 7.7 billion shares of
Citigroup Inc. common stock at a price of $3.25 per common share. In
May 2010, Treasury sold 1.5 billion of its 7.7 billion common shares.
In June 2010, Treasury sold 1.1 billion shares and has a remaining
ownership of 5.1 billion common shares.
[E] On June 30, 2009, GMAC LLC changed its corporate structure and
became GMAC Inc., and on May 10, 2010, GMAC Inc. changed its name to
Ally Financial Inc.
[End of table]
[End of section]
Appendix III: One-Year Actual Performance Compared to GAO's Pro rata
Stress Test Loss Projections for Each of the 19 SCAP BHCs:
[End of section]
Table 11 shows the names, location, and total assets as of December
31, 2008, of the 19 bank holding companies (BHC) subject to the
Supervisory Capital Assessment Program (SCAP) stress test that was
conducted by the federal bank regulators in the spring of 2009. The
stress test was a forward-looking exercise intended to help federal
banking regulators gauge the extent of the additional capital buffer
necessary to keep the BHCs strongly capitalized and lending even if
economic conditions are worse than had been expected between December
2008 and December 2010.
Table 11: Identification of 19 BHCs Subject to the Stress Test:
Dollars in thousands:
Table number: 12;
Name of bank holding company: American Express Company;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $126,074,000.
Table number: 13;
Name of bank holding company: Bank of America Corporation;
Location of headquarters: Charlotte, NC;
Total assets as of December 31, 2008: $1,817,943,000.
Table number: 14;
Name of bank holding company: BB&T Corporation;
Location of headquarters: Winston-Salem, NC;
Total assets as of December 31, 2008: $152,015,000.
Table number: 15;
Name of bank holding company: The Bank of New York Mellon Corporation;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $237,512,000.
Table number: 16;
Name of bank holding company: Capital One Financial Corporation;
Location of headquarters: McLean, VA;
Total assets as of December 31, 2008: $165,913,452.
Table number: 17;
Name of bank holding company: Citigroup Inc.;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $1,938,470,000.
Table number: 18;
Name of bank holding company: Fifth Third Bancorp;
Location of headquarters: Cincinnati, OH;
Total assets as of December 31, 2008: $119,764,000.
Table number: 19;
Name of bank holding company: GMAC LLC;
Location of headquarters: Detroit, MI;
Total assets as of December 31, 2008: $189,476,000.
Table number: 20;
Name of bank holding company: The Goldman Sachs Group, Inc.;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $884,547,000.
Table number: 21;
Name of bank holding company: JPMorgan Chase & Co.;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $2,175,052,000.
Table number: 22;
Name of bank holding company: KeyCorp;
Location of headquarters: Cleveland, OH;
Total assets as of December 31, 2008: $104,531,000.
Table number: 23;
Name of bank holding company: MetLife, Inc.;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $501,678,000.
Table number: 24;
Name of bank holding company: Morgan Stanley;
Location of headquarters: New York, NY;
Total assets as of December 31, 2008: $676,764,000.
Table number: 25;
Name of bank holding company: PNC Financial Services Group, Inc.;
Location of headquarters: Pittsburgh, PA;
Total assets as of December 31, 2008: $291,081,000.
Table number: 26;
Name of bank holding company: Regions Financial Corporation;
Location of headquarters: Birmingham, AL;
Total assets as of December 31, 2008: $146,247,810.
Table number: 27;
Name of bank holding company: State Street Corporation;
Location of headquarters: Boston, MA;
Total assets as of December 31, 2008: $173,631,000.
Table number: 28;
Name of bank holding company: SunTrust Banks, Inc.;
Location of headquarters: Atlanta, GA;
Total assets as of December 31, 2008: $189,137,961.
Table number: 29;
Name of bank holding company: U.S. Bancorp;
Location of headquarters: Minneapolis, MN;
Total assets as of December 31, 2008: $265,912,000.
Table number: 30;
Name of bank holding company: Wells Fargo & Company;
Location of headquarters: San Francisco, CA;
Total assets as of December 31, 2008: $1,309,639,000.
Source: GAO.
The following tables (12 through 30) compare the 2009 performance of
the 19 BHCs involved in SCAP to the 2-year SCAP estimates and the GAO
1-year pro rata estimates for the more adverse economic scenario.
Specifically, these tables include comparison of actual and estimates
of losses and gains associated with loans, securities, trading and
counterparty, resources, preprovision net revenue (PPNR), and
allowance for loan and lease losses (ALLL). These tables also include
a comparison of actual capital levels at December 31, 2009, and
December 31, 2008. Totals may not add due to rounding. For a more
detailed explanation of the calculations made in constructing this
analysis, see appendix I.
[End of table]
Table 12: American Express Company:
Tier 1 capital;
Actual at 12/31/09: $11.5 billion;
12/31/08 balance per SCAP: $10.1 billion;
Difference: $1.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 113.5%.
Tier 1 common capital;
Actual at 12/31/09: $11.5 billion;
12/31/08 balance per SCAP: $10.1 billion;
Difference: $1.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 113.5%.
Risk-weighted assets;
Actual at 12/31/09: $116.6 billion;
12/31/08 balance per SCAP: $104.4 billion;
Difference: $12.2 billion;
12/31/09 as a percent of the 12/31/08 balance: 111.6%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 9.8%;
12/31/08 balance per SCAP: 9.7%;
Difference: 0.1%;
12/31/09 as a percent of the 12/31/08 balance: 101.4%.
Tier 1 common capital ratio;
Actual at 12/31/09: 9.8%;
12/31/08 balance per SCAP: 9.7%;
Difference: 0.1%;
12/31/09 as a percent of the 12/31/08 balance: 101.4%.
Total asset losses;
Actual for year ended 12/31/09: $4.4 billion;
2-year SCAP estimate: $11.2 billion;
GAO 1-year pro rate estimate: $5.6 billion;
Difference: ($1.2 billion);
Actual as a percent of the 12/31/08 balance: 78.0%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $3.4 billion;
2-year SCAP estimate: $8.5 billion;
GAO 1-year pro rate estimate: $4.3 billion;
Difference: ($0.9 billion);
Actual as a percent of the 12/31/08 balance: 79.9%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.2 billion);
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $1.2 billion;
2-year SCAP estimate: $2.7 billion;
GAO 1-year pro rate estimate: $1.4 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 88.0%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $7.4 billion;
2-year SCAP estimate: $11.9 billion;
GAO 1-year pro rate estimate: $6.0 billion;
Difference: $1.4 billion;
Actual as a percent of the 12/31/08 balance: 123.8%.
PPNR;
Actual for year ended 12/31/09: $7.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $5.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $19.0 billion[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $16.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $3.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $3.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
Table 13: Bank of America Corporation:
Tier 1 capital;
Actual at 12/31/09: $160.6 billion;
12/31/08 balance per SCAP: $173.2 billion;
Difference: ($12.6) billion;
12/31/09 as a percent of the 12/31/08 balance: 92.7%.
Tier 1 common capital;
Actual at 12/31/09: $120.6[A] billion;
12/31/08 balance per SCAP: $74.5 billion;
Difference: $46.1 billion;
12/31/09 as a percent of the 12/31/08 balance: 161.9%.
Risk-weighted assets;
Actual at 12/31/09: $1,541.6 billion;
12/31/08 balance per SCAP: $1,633.8 billion;
Difference: ($92.2) billion;
12/31/09 as a percent of the 12/31/08 balance: 94.4%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 10.4%;
12/31/08 balance per SCAP: 10.6%;
Difference: (0.2%);
12/31/09 as a percent of the 12/31/08 balance: 98.3%.
Tier 1 common capital ratio;
Actual at 12/31/09: 7.8%;
12/31/08 balance per SCAP: 4.6%;
Difference: 3.2%;
12/31/09 as a percent of the 12/31/08 balance: 170.1%.
Total asset losses;
Actual for year ended 12/31/09: $12.3 billion;
2-year SCAP estimate: $136.6 billion;
GAO 1-year pro rate estimate: $68.4 billion;
Difference: ($56.0 billion);
Actual as a percent of the 12/31/08 balance: 18.1%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $3.6 billion;
2-year SCAP estimate: $22.1 billion;
GAO 1-year pro rate estimate: $11.1 billion;
Difference: ($7.5 billion);
Actual as a percent of the 12/31/08 balance: $32.5%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $7.6 billion;
2-year SCAP estimate: $21.4 billion;
GAO 1-year pro rate estimate: $10.7 billion;
Difference: ($3.1 billion);
Actual as a percent of the 12/31/08 balance: 70.9%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $5.0 billion;
2-year SCAP estimate: $15.7 billion;
GAO 1-year pro rate estimate: $7.9 billion;
Difference: ($2.8 billion);
Actual as a percent of the 12/31/08 balance: 63.8%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $3.3 billion;
2-year SCAP estimate: $9.4 billion;
GAO 1-year pro rate estimate: $4.7 billion;
Difference: ($1.4 billion);
Actual as a percent of the 12/31/08 balance: 69.4%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $7.8 billion;
2-year SCAP estimate: $19.1 billion;
GAO 1-year pro rate estimate: $9.6 billion;
Difference: ($1.8 billion);
Actual as a percent of the 12/31/08 balance: 81.5%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($9.3 billion);
2-year SCAP estimate: $8.5 billion;
GAO 1-year pro rate estimate: $4.3 billion;
Difference: ($13.5 billion);
Actual as a percent of the 12/31/08 balance: (218.4%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: ($12.1 billion)[B];
2-year SCAP estimate: $24.1 billion;
GAO 1-year pro rate estimate: $12.1 billion;
Difference: ($24.1 billion);
Actual as a percent of the 12/31/08 balance: (100.1%).
Total asset losses: Other;
Actual for year ended 12/31/09: $6.4 billion;
2-year SCAP estimate: $16.4 billion;
GAO 1-year pro rate estimate: $8.2 billion;
Difference: ($1.8 billion);
Actual as a percent of the 12/31/08 balance: 78.7%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $29.5 billion;
2-year SCAP estimate: $74.5 billion;
GAO 1-year pro rate estimate: $37.3 billion;
Difference: ($7.7 billion);
Actual as a percent of the 12/31/08 balance: 79.3%.
PPNR;
Actual for year ended 12/31/09: $43.7 billion [C,D];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $47.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $62.6[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $66.7 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $14.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $23.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $37.2 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Tier 1 common capital includes $19.29 billion of common equivalent
securities (CES) issued in December 2009. As described in Bank of
America Corporation's (Bank of America) Form 10-K for the year ended
December 31, 2009, CES are included in tier 1 common capital based
upon applicable regulatory guidance and the expectation that the
underlying securities would convert to common stock following
shareholder approval of additional authorized shares. Shareholders
approved the increase in the number of authorized shares of common
stock at the special meeting of shareholders held on February 23,
2010, and the CES converted to common stock on February 24, 2010.
[B] The trading and counterparty data in the Y-9C includes both
customer derived revenue from transactions for BHCs that operate as
broker-dealers as well as gains and losses from proprietary trading
and associated expenses. These items are presented in net form only in
the Y-9C. For the five BHCs that had their trading portfolios stressed
(including Bank of America), the trading and counterparty line is
based on projections of (gains) losses from proprietary trading, but
PPNR (specifically noninterest revenue) included projections of gains
(losses) from customer derived revenue from transactions due to
operations as a broker-dealer. Because we could not segregate these
items based on the Y-9C, we have included the net amount in the
trading and counterparty and noninterest income line items above. As a
result of this limitation, the net amount of the trading gains or
losses and PNNR in the table may be overstated or understated.
[C] PPNR includes an owned debt value adjustment of ($4.80) billion,
which was not stressed in SCAP. As Bank of America's credit spreads
narrowed during 2009, this caused the liability values to increase.
This offsets the gains Bank of America experienced in 2008 when its
credit spreads widened.
[D] PPNR includes one-time items totaling $4.90 billion, which were
not included in SCAP.
[End of table]
Table 14: BB&T Corporation:
Tier 1 capital;
Actual at 12/31/09: $13.5 billion;
12/31/08 balance per SCAP: $13.4 billion;
Difference: $0.1 billion;
12/31/09 as a percent of the 12/31/08 balance: 100.4%.
Tier 1 common capital;
Actual at 12/31/09: $10.0 billion;
12/31/08 balance per SCAP: $7.8 billion;
Difference: $2.2 billion;
12/31/09 as a percent of the 12/31/08 balance: 127.7%.
Risk-weighted assets;
Actual at 12/31/09: $117.2 billion;
12/31/08 balance per SCAP: $109.8 billion;
Difference: $7.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 106.7%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 11.5%;
12/31/08 balance per SCAP: 12.3%;
Difference: (0.8%);
12/31/09 as a percent of the 12/31/08 balance: 93.4%.
Tier 1 common capital ratio;
Actual at 12/31/09: 8.5%;
12/31/08 balance per SCAP: 7.1%;
Difference: 1.4%;
12/31/09 as a percent of the 12/31/08 balance: 170.1%.
Total asset losses;
Actual for year ended 12/31/09: $1.6 billion;
2-year SCAP estimate: $8.7 billion;
GAO 1-year pro rate estimate: $4.4 billion;
Difference: ($2.8 billion);
Actual as a percent of the 12/31/08 balance: 36.2%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $1.1 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: 47.8%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.7 billion;
GAO 1-year pro rate estimate: $0.4 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 40.9%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $0.7 billion;
GAO 1-year pro rate estimate: $0.4 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 56.5%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.7 billion;
2-year SCAP estimate: $4.5 billion;
GAO 1-year pro rate estimate: $2.3 billion;
Difference: ($1.5 billion);
Actual as a percent of the 12/31/08 balance: 32.3%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.2 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 81.6%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.2 billion);
2-year SCAP estimate: $0.2 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: -199.3%.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Other;
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: $1.3 billion;
GAO 1-year pro rate estimate: $0.7 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: 55.6%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $2.6 billion;
2-year SCAP estimate: $5.5 billion;
GAO 1-year pro rate estimate: $2.8 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 94.9%.
PPNR;
Actual for year ended 12/31/09: $3.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $4.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $3.5[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $4.7 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $1.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $2.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
On August 14, 2009, BB&T Corporation (BB&T) entered into a purchase
and assumption agreement with the Federal Deposit Insurance
Corporation (FDIC) to acquire certain assets and assume substantially
all of the deposits and certain liabilities of Colonial Bank, an
Alabama state-chartered bank headquartered in Montgomery, Alabama. As
further discussed in BB&T's Form 10-K for the year ended December 31,
2009, BB&T entered into loss sharing agreements with the FDIC related
to certain loans, securities, and other assets. The actual results
include BB&T's performance including the Colonial Bank acquisition.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
Table 15: The Bank of New York Mellon Corporation:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $12.9;
12/31/08 balance per SCAP: $15.4;
Difference: ($2.5);
12/31/09 as a percent of the 12/31/08 balance: 83.7%.
Tier 1 common capital;
Actual at 12/31/09: $11.2;
12/31/08 balance per SCAP: $11.0;
Difference: $0.2;
12/31/09 as a percent of the 12/31/08 balance: 101.8%.
Risk-weighted assets;
Actual at 12/31/09: $106.3;
12/31/08 balance per SCAP: $115.8;
Difference: ($9.5);
12/31/09 as a percent of the 12/31/08 balance: 91.8%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 12.1%;
12/31/08 balance per SCAP: 13.3%;
Difference: (1.2%);
12/31/09 as a percent of the 12/31/08 balance: 91.1%.
Tier 1 common capital ratio;
Actual at 12/31/09: 10.5%;
12/31/08 balance per SCAP: 9.5%;
Difference: 1.0%;
12/31/09 as a percent of the 12/31/08 balance: 110.8%.
Total asset losses;
Actual for year ended 12/31/09: $56. billion;
2-year SCAP estimate: $5.4 billion;
GAO 1-year pro rate estimate: $2.7 billion;
Difference: $2.9 billion;
Actual as a percent of the 12/31/08 balance: 207.6%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.2 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: $0.0 billion;
Actual as a percent of the 12/31/08 balance: 60.0%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.4 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 45.0%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.2 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 50.0%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: $5.4 billion[A];
2-year SCAP estimate: $4.2 billion;
GAO 1-year pro rate estimate: $2.1 billion;
Difference: $3.3 billion);
Actual as a percent of the 12/31/08 balance: 255.7%.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [B];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Other;
Actual for year ended 12/31/09: $0.0;
2-year SCAP estimate: $0.4 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 17.0%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $3.4 billion;
2-year SCAP estimate: $6.7 billion;
GAO 1-year pro rate estimate: $3.4 billion;
Difference: $0.0;
Actual as a percent of the 12/31/08 balance: 100.2%.
PPNR;
Actual for year ended 12/31/09: $3.5billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $2.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $10.1[B] billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $9.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $0.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Based on discussions with Bank of New York Mellon Corporation
(Bank of New York Mellon) officials, the company's securities
portfolio underwent a significant restructuring in the third quarter
of 2009 in order to de-risk this portfolio, causing the recognition of
significant losses in that period. However, The Bank of New York
Mellon sold off many of its riskiest holdings in that period,
including many Alt-A residential mortgage-backed securities, so that
it expects to see gains in this portfolio in the future, causing the
final 2-year loss amount to be less than the amount projected under
SCAP in the securities (available for sale and held to maturity)
portfolio. See the Bank of New York Mellon's Form 10-K for the year
ended December 31, 2009, and other public disclosures for additional
information. As a result of the write downs taken due to the
restructuring of the securities portfolio, Bank of New York Mellon
expects an increase in net interest revenue of $200 million in 2010.
As of the second quarter of 2010 year to date, the BHC experienced a
gain of $20 million in this portfolio.
[B] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
Table 16: Capital One Financial Corporation:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $16.0 billion;
12/31/08 balance per SCAP: $16.8 billion;
Difference: ($0.8) billion;
12/31/09 as a percent of the 12/31/08 balance: 95.2%.
Tier 1 common capital;
Actual at 12/31/09: $12.4 billion;
12/31/08 balance per SCAP: $12.0 billion;
Difference: $0.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 103.0%.
Risk-weighted assets;
Actual at 12/31/09: $116.3 billion;
12/31/08 balance per SCAP: $131.8 billion;
Difference: ($15.5) billion;
12/31/09 as a percent of the 12/31/08 balance: 88.2%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 13.7%;
12/31/08 balance per SCAP: 12.7%;
Difference: 1.0%;
12/31/09 as a percent of the 12/31/08 balance: 108.2%.
Tier 1 common capital ratio;
Actual at 12/31/09: 10.6%;
12/31/08 balance per SCAP: 9.1%;
Difference: 1.5%;
12/31/09 as a percent of the 12/31/08 balance: 116.7%.
Total asset losses;
Actual for year ended 12/31/09: $4.4 billion;
2-year SCAP estimate: $1.4 billion;
GAO 1-year pro rate estimate: $6.7 billion;
Difference: ($2.3 billion);
Actual as a percent of the 12/31/08 balance: 65.1%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $1.8 billion;
GAO 1-year pro rate estimate: $0.9 billion;
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: 7.8%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $0.7 billion;
GAO 1-year pro rate estimate: $0.4 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 63.0%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $1.5 billion;
GAO 1-year pro rate estimate: $0.8 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 81.5%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $1.1 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 62.4%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $1.8 billion;
2-year SCAP estimate: $3.6 billion;
GAO 1-year pro rate estimate: $1.8 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 98.0%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.2 billion);
2-year SCAP estimate: $0.4 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: (103.1%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Other;
Actual for year ended 12/31/09: $1.6 billion;
2-year SCAP estimate: $4.3 billion;
GAO 1-year pro rate estimate: $2.2 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 72.5%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $5.8 billion;
2-year SCAP estimate: $9.0 billion;
GAO 1-year pro rate estimate: $4.5 billion;
Difference: $1.3 billion;
Actual as a percent of the 12/31/08 balance: 128.0%.
PPNR;
Actual for year ended 12/31/09: $5.4;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $7.7 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $5.0[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $7.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: ($0.4) billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $4.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $4.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
Table 17: Citigroup Inc.
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $127.0 billion;
12/31/08 balance per SCAP: $118.8 billion;
Difference: $8.2 billion;
12/31/09 as a percent of the 12/31/08 balance: 106.9%.
Tier 1 common capital;
Actual at 12/31/09: $106.4 billion;
12/31/08 balance per SCAP: $22.9 billion;
Difference: $83.5 billion;
12/31/09 as a percent of the 12/31/08 balance: 464.5%.
Risk-weighted assets;
Actual at 12/31/09: $1,088.5 billion;
12/31/08 balance per SCAP: $996.2 billion;
Difference: $92.3 billion;
12/31/09 as a percent of the 12/31/08 balance: 109.3%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 11.7%;
12/31/08 balance per SCAP: 11.9%;
Difference: (0.2%);
12/31/09 as a percent of the 12/31/08 balance: 98.1%.
Tier 1 common capital ratio;
Actual at 12/31/09: 9.8%;
12/31/08 balance per SCAP: 2.3%;
Difference: 7.5%;
12/31/09 as a percent of the 12/31/08 balance: 424.9%.
Total asset losses;
Actual for year ended 12/31/09: $27.2 billion;
2-year SCAP estimate: $104.7 billion;
GAO 1-year pro rate estimate: $52.4 billion;
Difference: ($25.1 billion);
Actual as a percent of the 12/31/08 balance: 52.0%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $4.2 billion;
2-year SCAP estimate: $15.3 billion;
GAO 1-year pro rate estimate: $7.7 billion;
Difference: ($3.5 billion);
Actual as a percent of the 12/31/08 balance: 54.5%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $4.7 billion;
2-year SCAP estimate: $12.2 billion;
GAO 1-year pro rate estimate: $6.1 billion;
Difference: ($1.4 billion);
Actual as a percent of the 12/31/08 balance: 76.8%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $5.1 billion;
2-year SCAP estimate: $8.9 billion;
GAO 1-year pro rate estimate: $4.5 billion;
Difference: $0.6 billion;
Actual as a percent of the 12/31/08 balance: 113.6%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.7 billion;
2-year SCAP estimate: $2.7 billion;
GAO 1-year pro rate estimate: $1.4 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 52.2%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $6.5 billion;
2-year SCAP estimate: $19.9 billion;
GAO 1-year pro rate estimate: $10.0 billion;
Difference: ($3.4 billion);
Actual as a percent of the 12/31/08 balance: 65.4%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: $0.9 billion;
2-year SCAP estimate: $2.9 billion;
GAO 1-year pro rate estimate: $1.5 billion;
Difference: ($0.5 billion);
Actual as a percent of the 12/31/08 balance: 62.8%.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: ($4.4 billion)[A];
2-year SCAP estimate: $22.4 billion;
GAO 1-year pro rate estimate: $11.2 billion;
Difference: ($15.6 billion);
Actual as a percent of the 12/31/08 balance: (39.7%).
Total asset losses: Other;
Actual for year ended 12/31/09: $9.6 billion;
2-year SCAP estimate: $20.4 billion;
GAO 1-year pro rate estimate: $10.2 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 94.3%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $25.5 billion;
2-year SCAP estimate: $49.0 billion;
GAO 1-year pro rate estimate: $24.5 billion;
Difference: $1.0 billion;
Actual as a percent of the 12/31/08 balance: 103.9%.
PPNR;
Actual for year ended 12/31/09: $31.9 billion [B,C];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $50.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $32.1[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $50.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $6.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $29.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $36.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] The trading and counterparty data in the Y-9C includes both
customer derived revenue from transactions for BHCs that operate as
broker-dealers as well as gains and losses from proprietary trading
and associated expenses. These items are presented in net form only in
the Y-9C. For the five BHCs that had their trading portfolios stressed
(including Citigroup Inc.), the trading and counterparty line is based
on projections of (gains) losses from proprietary trading, but PPNR
(specifically noninterest revenue) included projections of gains
(losses) from customer derived revenue from transactions due to
operations as a broker-dealer. Because we could not segregate these
items based on the Y-9C, we have included the net amount in both the
trading and counterparty and noninterest income line items above. As a
result of this limitation, the net amount of the trading gains or
losses and PPNR in the table may be overstated or understated.
[B] PPNR includes an owned debt value adjustment of ($4.23) billion,
which was not included stressed in SCAP. As Citigroup's credit spreads
narrowed during 2009, this caused the liability values to increase.
This offsets the gains Citigroup Inc. experienced in 2008 when its
credit spreads widened.
[C] PPNR includes one-time items totaling $2.73 billion, which were
not included in SCAP.
[End of table]
Table 18: Fifth Third Bancorp:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $13.4 billion;
12/31/08 balance per SCAP: $11.9 billion;
Difference: $1.5 billion;
12/31/09 as a percent of the 12/31/08 balance: 112.8%.
Tier 1 common capital;
Actual at 12/31/09: $7.1 billion;
12/31/08 balance per SCAP: $4.9 billion;
Difference: $2.2 billion;
12/31/09 as a percent of the 12/31/08 balance: 144.0%.
Risk-weighted assets;
Actual at 12/31/09: $100.9 billion;
12/31/08 balance per SCAP: $112.6 billion;
Difference: ($11.7) billion;
12/31/09 as a percent of the 12/31/08 balance: 89.6%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 13.3%;
12/31/08 balance per SCAP: 10.6%;
Difference: 2.7%;
12/31/09 as a percent of the 12/31/08 balance: 125.6%.
Tier 1 common capital ratio;
Actual at 12/31/09: 7.0%;
12/31/08 balance per SCAP: 4.4%;
Difference: 2.6%;
12/31/09 as a percent of the 12/31/08 balance: 159.0%.
Total asset losses;
Actual for year ended 12/31/09: $2.5 billion;
2-year SCAP estimate: $9.1 billion;
GAO 1-year pro rate estimate: $4.6 billion;
Difference: ($2.1 billion);
Actual as a percent of the 12/31/08 balance: 54.6%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $1.1 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: 49.1%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $1.1 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 57.8%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $2.8 billion;
GAO 1-year pro rate estimate: $1.4 billion;
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: 39.4%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: $2.9 billion;
GAO 1-year pro rate estimate: $1.5 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: 70.8%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $0.4 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 84.6%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.1 billion);
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: (227.5%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Other;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $0.9 billion;
GAO 1-year pro rate estimate: $0.5 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 54.6%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $3.3 billion;
2-year SCAP estimate: $5.5 billion;
GAO 1-year pro rate estimate: $2.8 billion;
Difference: $0.5 billion;
Actual as a percent of the 12/31/08 balance: 119.7%.
PPNR;
Actual for year ended 12/31/09: $4.3[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $3.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $4.6[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $3.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $2.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $3.7 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[B] Fifth Third Bancorp's PPNR includes one-time items totaling $2.05
billion, which were not included in SCAP.
[End of table]
Table 19: GMAC LLC:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $22.4 billion;
12/31/08 balance per SCAP: $17.4 billion;
Difference: $5.0 billion;
12/31/09 as a percent of the 12/31/08 balance: 128.7%.
Tier 1 common capital;
Actual at 12/31/09: $7.7 billion;
12/31/08 balance per SCAP: $11.1 billion;
Difference: ($3.4) billion;
12/31/09 as a percent of the 12/31/08 balance: 69.2%.
Risk-weighted assets;
Actual at 12/31/09: $158.3 billion;
12/31/08 balance per SCAP: $172.7 billion;
Difference: ($14.4) billion;
12/31/09 as a percent of the 12/31/08 balance: 91.7%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 14.1%;
12/31/08 balance per SCAP: 10.1%;
Difference: 4.0%;
12/31/09 as a percent of the 12/31/08 balance: 140.1%.
Tier 1 common capital ratio;
Actual at 12/31/09: 4.8%;
12/31/08 balance per SCAP: 6.4%;
Difference: (1.6%);
12/31/09 as a percent of the 12/31/08 balance: 75.8%.
Total asset losses;
Actual for year ended 12/31/09: $6.9 billion;
2-year SCAP estimate: $9.2 billion;
GAO 1-year pro rate estimate: $4.6 billion;
Difference: $2.3 billion;
Actual as a percent of the 12/31/08 balance: 150.7%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $2.4 billion;
2-year SCAP estimate: $2.0 billion;
GAO 1-year pro rate estimate: $1.0 billion;
Difference: $1.4 billion;
Actual as a percent of the 12/31/08 balance: 239.9%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $1.6 billion;
2-year SCAP estimate: $1.1 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: $1.0 billion;
Actual as a percent of the 12/31/08 balance: 287.3%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: $1.0 billion;
GAO 1-year pro rate estimate: $0.5 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 71.2%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.7 billion;
2-year SCAP estimate: $0.6 billion;
GAO 1-year pro rate estimate: $0.3 billion;
Difference: $0.4 billion;
Actual as a percent of the 12/31/08 balance: 236.7%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.2 billion);
2-year SCAP estimate: $0.5 billion;
GAO 1-year pro rate estimate: $0.3 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: (66.4%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [B];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Other;
Actual for year ended 12/31/09: $2.1 billion;
2-year SCAP estimate: $4.0 billion;
GAO 1-year pro rate estimate: $2.1 billion;
Difference: $0.1 billion;
Actual as a percent of the 12/31/08 balance: 102.7%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: ($1.1 billion);
2-year SCAP estimate: ($0.5 billion);
GAO 1-year pro rate estimate: ($0.3 billion);
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: (429.6%).
PPNR;
Actual for year ended 12/31/09: ($2.1 billion);
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $10.1;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $12.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: ($1.0 billion);
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $3.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $2.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Notes: N/a means not applicable.
GMAC LLC (GMAC) experienced a loss from discontinued operations
totaling $2.4 billion in 2009. The item was not included in our
calculation of PPNR.
GMAC changed its corporate name to GMAC Inc. on June 30, 2009. On May
10, 2010, GMAC Inc. changed its name to Ally Financial Inc.
[A] According to GMAC officials, in order to be positioned for better
future performance the company pulled losses forward into the fourth
quarter of 2009 by recognizing the lifetime losses on assets in that
period; and as a result of the accelerated loss recognition less
losses would be expected in 2010. GMAC had a profit in the first and
second quarters of 2010, its first profits since the fourth quarter of
2008. GMAC's tier 1 common capital ratio also improved to 5 percent
and 5.2 percent, respectively.
[B] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[C] GMAC's "Other" loans category per SCAP included only automobile-
related loans. However, our classification of "Other" using Y-9C data
includes automobile loans and other loans such as European home
mortgages, which had substantial losses in 2009. Automobile loan
losses totaled about $600 million in 2009 compared to the $2.0 billion
prorated SCAP estimate, according to GMAC officials. On April 12,
2010, GMAC's mortgage subsidiary, Residential Capital, LLC agreed to
sell its European mortgage assets and business. The assets in the
transactions are valued at approximately the levels established in the
fourth quarter of 2009, and there is no material gain or loss expected.
[End of table]
Table 20: The Goldman Sachs Group, Inc.
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $64.6 billion;
12/31/08 balance per SCAP: $55.9 billion;
Difference: $8.7 billion;
12/31/09 as a percent of the 12/31/08 balance: 115.6%.
Tier 1 common capital;
Actual at 12/31/09: $52.7 billion;
12/31/08 balance per SCAP: $34.4 billion;
Difference: $18.3 billion;
12/31/09 as a percent of the 12/31/08 balance: 153.2%.
Risk-weighted assets;
Actual at 12/31/09: $431.9 billion;
12/31/08 balance per SCAP: $444.8 billion;
Difference: ($12.9) billion;
12/31/09 as a percent of the 12/31/08 balance: 97.1%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 15.0%;
12/31/08 balance per SCAP: 12.6%;
Difference: 2.4%;
12/31/09 as a percent of the 12/31/08 balance: 118.8%.
Tier 1 common capital ratio;
Actual at 12/31/09: 12.2%;
12/31/08 balance per SCAP: 7.7%;
Difference: 4.5%;
12/31/09 as a percent of the 12/31/08 balance: 158.4%.
Total asset losses;
Actual for year ended 12/31/09: ($23.3 billion);
2-year SCAP estimate: $17.8 billion;
GAO 1-year pro rate estimate: $8.9 billion;
Difference: ($32.2 billion);
Actual as a percent of the 12/31/08 balance: (261.3%).
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: [Empty]%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.0 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 0.0%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: [Empty].
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.0 billion);
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: (72.0%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: ($23.2 billion)[A];
2-year SCAP estimate: $17.4 billion;
GAO 1-year pro rate estimate: $8.7 billion;
Difference: ($31.9 billion);
Actual as a percent of the 12/31/08 balance: (267.1%).
Total asset losses: Other;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.3 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 0.0%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $19.4 billion;
2-year SCAP estimate: $18.5 billion;
GAO 1-year pro rate estimate: $9.3 billion;
Difference: $10.2 billion;
Actual as a percent of the 12/31/08 balance: 209.9%.
PPNR;
Actual for year ended 12/31/09: $19.4 billion[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $7.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $37.3[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $25.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] The trading and counterparty data in the Y-9C includes both
customer derived revenue from transactions for BHCs that operate as
broker-dealers as well as gains and losses from proprietary trading
and associated expenses. These items are presented in net form only in
the Y-9C. For the five BHCs that had their trading portfolios stressed
(including Goldman Sachs Group, Inc.), the trading and counterparty
line is based on projections of (gains) losses from proprietary
trading, but PPNR (specifically noninterest revenue) included
projections of gains (losses) from customer derived revenue from
transactions due to operations as a broker-dealer. Because we could
not segregate these items based on the Y-9C, we have included the net
amount in both the trading and counterparty and noninterest income
line items above. As a result of this limitation, the net amount of
the trading gains or losses and PPNR in the table may be overstated or
understated.
[B] PPNR includes an owned debt value adjustment of ($770) million,
which was not stressed in SCAP. As Goldman Sachs Group, Inc.'s credit
spreads narrowed during 2009, this caused the liability values to
increase. This offsets the gains Goldman Sachs Group, Inc. experienced
in 2008 when its credit spreads widened.
[End of table]
Table 21: JPMorgan Chase & Co.
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $133.0 billion;
12/31/08 balance per SCAP: $136.2 billion;
Difference: ($3.2) billion;
12/31/09 as a percent of the 12/31/08 balance: 97.6%.
Tier 1 common capital;
Actual at 12/31/09: $105.3 billion;
12/31/08 balance per SCAP: $87.0 billion;
Difference: $18.3billion;
12/31/09 as a percent of the 12/31/08 balance: 121.0%.
Risk-weighted assets;
Actual at 12/31/09: $1,198.0 billion;
12/31/08 balance per SCAP: $1,337.5 billion;
Difference: ($139.5) billion;
12/31/09 as a percent of the 12/31/08 balance: 89.6%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 11.1%;
12/31/08 balance per SCAP: 10.2%;
Difference: 0.9%;
12/31/09 as a percent of the 12/31/08 balance: 108.8%.
Tier 1 common capital ratio;
Actual at 12/31/09: 8.8%;
12/31/08 balance per SCAP: 6.5%;
Difference: 2.3%;
12/31/09 as a percent of the 12/31/08 balance: 135.2%.
Total asset losses;
Actual for year ended 12/31/09: $12.0 billion;
2-year SCAP estimate: $97.4 billion;
GAO 1-year pro rate estimate: $48.7 billion;
Difference: ($36.7 billion);
Actual as a percent of the 12/31/08 balance: 24.6%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $3.5 billion;
2-year SCAP estimate: $18.8 billion;
GAO 1-year pro rate estimate: $9.4 billion;
Difference: ($5.9 billion);
Actual as a percent of the 12/31/08 balance: 37.7%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $4.7 billion;
2-year SCAP estimate: $20.1 billion;
GAO 1-year pro rate estimate: $10.1 billion;
Difference: ($5.4 billion);
Actual as a percent of the 12/31/08 balance: 46.3%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $5.0 billion;
2-year SCAP estimate: $15.7 billion;
GAO 1-year pro rate estimate: $7.9 billion;
Difference: ($2.8 billion);
Actual as a percent of the 12/31/08 balance: 63.8%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $3.6 billion;
2-year SCAP estimate: $10.3 billion;
GAO 1-year pro rate estimate: $5.2 billion;
Difference: ($1.5 billion);
Actual as a percent of the 12/31/08 balance: 70.8%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $8.1 billion;
2-year SCAP estimate: $21.2 billion;
GAO 1-year pro rate estimate: $10.6 billion;
Difference: ($2.5 billion);
Actual as a percent of the 12/31/08 balance: 76.1%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($1.1 billion);
2-year SCAP estimate: $1.2 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($1.7 billion);
Actual as a percent of the 12/31/08 balance: (185.0%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: ($9.9 billion)[A];
2-year SCAP estimate: $16.7 billion;
GAO 1-year pro rate estimate: $8.4 billion;
Difference: ($1.82 billion);
Actual as a percent of the 12/31/08 balance: (118.2%).
Total asset losses: Other;
Actual for year ended 12/31/09: $2.2 billion;
2-year SCAP estimate: $5.3 billion;
GAO 1-year pro rate estimate: $2.7 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: 83.7%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $38.3 billion;
2-year SCAP estimate: $72.4 billion;
GAO 1-year pro rate estimate: $36.2 billion;
Difference: $2.1 billion;
Actual as a percent of the 12/31/08 balance: 109.5%.
PPNR;
Actual for year ended 12/31/09: $46.8 billion[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $51.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $48.5[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $53.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $8.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $23.2 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $31.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
[A] The trading and counterparty data in the Y-9C includes both
customer derived revenue from transactions for BHCs that operate as
broker-dealers as well as gains and losses from proprietary trading
and associated expenses. These items are presented in net form only in
the Y-9C. For the five BHCs that had their trading portfolios stressed
(including JPMorgan Chase & Co.), the trading and counterparty line is
based on projections of (gains) losses from proprietary trading, but
PPNR (specifically noninterest revenue) included projections of gains
(losses) from customer derived revenue from transactions due to
operations as a broker-dealer. Because we could not segregate these
items based on the Y-9C, we have included the net amount in both the
trading and counterparty and noninterest income line items above. As a
result of this limitation, the net amount of the trading gains or
losses and PPNR in the table may be overstated or understated.
[B] PPNR includes an owned debt value adjustment of ($1.57) billion,
which was not stressed in SCAP. As JPMorgan Chase & Co.'s credit
spreads narrowed during 2009, this caused the liability values to
increase. This offsets the gains JPMorgan Chase & Co. experienced in
2008 when its credit spreads widened.
[End of table]
Table 22: KeyCorp:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $11.0 billion;
12/31/08 balance per SCAP: $11.6 billion;
Difference: ($0.6) billion;
12/31/09 as a percent of the 12/31/08 balance: 94.4%.
Tier 1 common capital;
Actual at 12/31/09: $6.4 billion;
12/31/08 balance per SCAP: $6.0 billion;
Difference: $0.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 107.4%.
Risk-weighted assets;
Actual at 12/31/09: $85.9 billion;
12/31/08 balance per SCAP: $106.7 billion;
Difference: ($20.8) billion;
12/31/09 as a percent of the 12/31/08 balance: 80.5%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 12.8%;
12/31/08 balance per SCAP: 10.9%;
Difference: 1.9%;
12/31/09 as a percent of the 12/31/08 balance: 117.0%.
Tier 1 common capital ratio;
Actual at 12/31/09: 7.5%;
12/31/08 balance per SCAP: 5.6%;
Difference: 1.9%;
12/31/09 as a percent of the 12/31/08 balance: 133.9%.
Total asset losses;
Actual for year ended 12/31/09: $2.3 billion;
2-year SCAP estimate: $6.7 billion;
GAO 1-year pro rate estimate: $3.3 billion;
Difference: ($1.0 billion);
Actual as a percent of the 12/31/08 balance: 69.3%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 55.7%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $0.6 billion;
GAO 1-year pro rate estimate: $0.3 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 52.3%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $1.7 billion;
GAO 1-year pro rate estimate: $0.9 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 76.0%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: $2.3 billion;
GAO 1-year pro rate estimate: $1.2 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 85.8%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.0 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 44.4%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.1 billion);
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: (225.7%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $1.8 billion;
GAO 1-year pro rate estimate: $0.9 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: 64.6%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $2.1 billion;
GAO 1-year pro rate estimate: $1.1 billion;
Difference: ($1.0 billion);
Actual as a percent of the 12/31/08 balance: 5.3%.
PPNR;
Actual for year ended 12/31/09: $0.9 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $2.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $1.8[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $3.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.9 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $1.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $2.7 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
Table 23: MetLife, Inc.
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $28.8 billion;
12/31/08 balance per SCAP: $30.1 billion;
Difference: ($1.3 billion);
12/31/09 as a percent of the 12/31/08 balance: 95.6%.
Tier 1 common capital;
Actual at 12/31/09: $26.4 billion;
12/31/08 balance per SCAP: $27.8 billion;
Difference: ($1.4 billion);
12/31/09 as a percent of the 12/31/08 balance: 94.8%.
Risk-weighted assets;
Actual at 12/31/09: $322.8 billion;
12/31/08 balance per SCAP: $326.4 billion;
Difference: ($3.6) billion;
12/31/09 as a percent of the 12/31/08 balance: 98.9%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 8.9%;
12/31/08 balance per SCAP: 9.2%;
Difference: -0.3%;
12/31/09 as a percent of the 12/31/08 balance: 96.9%.
Tier 1 common capital ratio;
Actual at 12/31/09: 8.2%;
12/31/08 balance per SCAP: 8.5%;
Difference: -0.3%;
12/31/09 as a percent of the 12/31/08 balance: 96.1%.
Total asset losses;
Actual for year ended 12/31/09: $1.7 billion;
2-year SCAP estimate: $9.6 billion;
GAO 1-year pro rate estimate: $4.8 billion;
Difference: ($3.1 billion);
Actual as a percent of the 12/31/08 balance: 35.1%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.0 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 24.0%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.0 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 0.0%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.0 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 0.0%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.8 billion;
GAO 1-year pro rate estimate: $0.4 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: 6.9%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: $1.6 billion;
2-year SCAP estimate: $8.3 billion;
GAO 1-year pro rate estimate: $4.2 billion;
Difference: ($2.5 billion);
Actual as a percent of the 12/31/08 balance: 39.3%.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.5 billion;
GAO 1-year pro rate estimate: $0.3 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 10.7%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: ($1.1 billion);
2-year SCAP estimate: $5.6 billion;
GAO 1-year pro rate estimate: $2.8 billion;
Difference: ($3.9 billion);
Actual as a percent of the 12/31/08 balance: (38.9%).
PPNR;
Actual for year ended 12/31/09: ($0.7 billion);
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $14.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $29.4[A];
2-year SCAP estimate: $44.1[B];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $44.1[B] billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $0.7 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[B] MetLife, Inc. (MetLife) experienced high noninterest expense in
2009 largely due to derivative losses from interest rate hedging,
which protects MetLife against lower interest rates among other
things. Similar to the owned debt value adjustment, as MetLife's
credit spreads narrowed during 2009, this caused the liability values
to increase. This offsets the gains MetLife experienced in 2008 when
its credit spreads widened.
[End of table]
Table 24: Morgan Stanley:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $46.7 billion;
12/31/08 balance per SCAP: $47.2 billion;
Difference: ($0.5 billion);
12/31/09 as a percent of the 12/31/08 balance: 98.9%.
Tier 1 common capital;
Actual at 12/31/09: $20.5 billion;
12/31/08 balance per SCAP: $17.8 billion;
Difference: $2.7 billion;
12/31/09 as a percent of the 12/31/08 balance: 115.0%.
Risk-weighted assets;
Actual at 12/31/09: $305.0 billion;
12/31/08 balance per SCAP: $310.6 billion;
Difference: ($5.6) billion;
12/31/09 as a percent of the 12/31/08 balance: 98.2%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 15.3%;
12/31/08 balance per SCAP: 15.2%;
Difference: 0.1%;
12/31/09 as a percent of the 12/31/08 balance: 100.7%.
Tier 1 common capital ratio;
Actual at 12/31/09: 6.7%;
12/31/08 balance per SCAP: 5.7%;
Difference: 1.0%;
12/31/09 as a percent of the 12/31/08 balance: 117.8%.
Total asset losses;
Actual for year ended 12/31/09: ($7.1 billion);
2-year SCAP estimate: $19.7 billion;
GAO 1-year pro rate estimate: $9.8 billion;
Difference: ($16.9 billion);
Actual as a percent of the 12/31/08 balance: -72.7%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 20.0%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.6 billion;
GAO 1-year pro rate estimate: $0.3 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 46.7%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: (7.3%)[A];
2-year SCAP estimate: $18.7 billion;
GAO 1-year pro rate estimate: $9.4 billion;
Difference: ($16.6 billion);
Actual as a percent of the 12/31/08 balance: -77.9%.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: $0.2 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 0.0%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: $7.1 billion;
GAO 1-year pro rate estimate: $3.6 billion;
Difference: ($2.5 billion);
Actual as a percent of the 12/31/08 balance: 28.4%.
PPNR;
Actual for year ended 12/31/09: $3.6 billion[B,C];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $0.9 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $22.7[A];
2-year SCAP estimate: $44.1[B];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $22.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] The trading and counterparty data in the Y-9C includes both
customer derived revenue from transactions for BHCs that operate as
broker-dealers as well as gains and losses from proprietary trading
and associated expenses. These items are presented in net form only in
the Y-9C. For the five BHCs that had their trading portfolios stressed
(including Morgan Stanley), the trading and counterparty line is based
on projections of (gains) losses from proprietary trading, but PPNR
(specifically noninterest revenue) included projections of gains
(losses) from customer derived revenue from transactions due to
operations as a broker-dealer. Because we could not segregate these
items based on the Y-9C, we have included the net amount in both the
trading and counterparty and noninterest income line items above. As a
result of this limitation, the net amount of the trading gains or
losses and preprovision net revenue in the table may be overstated or
understated.
[B] PPNR includes an owned debt value adjustment of ($5.30) billion,
which was not included as a stress in SCAP. As Morgan Stanley's credit
spreads narrowed during 2009, this caused the liability values to
increase. This offsets the gains Morgan Stanley experienced in 2008
when its credit spreads widened.
[C] PPNR includes one-time items totaling $710 million, which were not
included in SCAP.
[End of table]
Table 25: PNC Financial Services Group, Inc.
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $26.5 billion;
12/31/08 balance per SCAP: $24.1 billion;
Difference: $2.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 110.1%.
Tier 1 common capital;
Actual at 12/31/09: $13.9 billion;
12/31/08 balance per SCAP: $11.7 billion;
Difference: $2.2 billion;
12/31/09 as a percent of the 12/31/08 balance: 119.2%.
Risk-weighted assets;
Actual at 12/31/09: $232.3 billion;
12/31/08 balance per SCAP: $250.9 billion;
Difference: ($18.6) billion;
12/31/09 as a percent of the 12/31/08 balance: 92.6%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 11.4%;
12/31/08 balance per SCAP: 9.6%;
Difference: 1.8%;
12/31/09 as a percent of the 12/31/08 balance: 119.0%.
Tier 1 common capital ratio;
Actual at 12/31/09: 6.0%;
12/31/08 balance per SCAP: 4.7%;
Difference: 1.3%;
12/31/09 as a percent of the 12/31/08 balance: 127.7%.
Total asset losses;
Actual for year ended 12/31/09: $2.7 billion;
2-year SCAP estimate: $18.8 billion;
GAO 1-year pro rate estimate: $9.4 billion;
Difference: $6.6 billion;
Actual as a percent of the 12/31/08 balance: 29.3%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $2.4 billion;
GAO 1-year pro rate estimate: $1.2 billion;
Difference: ($1.1 billion);
Actual as a percent of the 12/31/08 balance: 4.6%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: $4.6 billion;
GAO 1-year pro rate estimate: $2.3 billion;
Difference: ($1.9 billion);
Actual as a percent of the 12/31/08 balance: 19.4%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.9 billion;
2-year SCAP estimate: $3.2 billion;
GAO 1-year pro rate estimate: $1.6 billion;
Difference: ($0.7 billion);
Actual as a percent of the 12/31/08 balance: 57.8%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.8 billion;
2-year SCAP estimate: $4.5 billion;
GAO 1-year pro rate estimate: $2.3 billion;
Difference: ($1.5 billion);
Actual as a percent of the 12/31/08 balance: 33.4%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $0.4 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 85.6%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.0 billion);
2-year SCAP estimate: $1.3 billion;
GAO 1-year pro rate estimate: $0.7 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 4.2%.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: $2.3 billion;
GAO 1-year pro rate estimate: $1.2 billion;
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: 31.4%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $6.2 billion;
2-year SCAP estimate: $9.6 billion;
GAO 1-year pro rate estimate: $4.8 billion;
Difference: $1.4 billion;
Actual as a percent of the 12/31/08 balance: 128.6%.
PPNR;
Actual for year ended 12/31/09: $7.3 billion[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $9.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $7.9[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $9.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $1.2 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $3.9 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $5.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[B] PPNR includes one-time items totaling $1.08 billion, which were
not included in SCAP.
[End of table]
Table 26: Regions Financial Corporation:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $11.9 billion;
12/31/08 balance per SCAP: $12.1 billion;
Difference: ($0.2 billion);
12/31/09 as a percent of the 12/31/08 balance: 98.5%.
Tier 1 common capital;
Actual at 12/31/09: $7.4 billion;
12/31/08 balance per SCAP: $7.6 billion;
Difference: ($0.2 billion);
12/31/09 as a percent of the 12/31/08 balance: 97.2%.
Risk-weighted assets;
Actual at 12/31/09: $103.3 billion;
12/31/08 balance per SCAP: $116.3 billion;
Difference: ($13.0) billion;
12/31/09 as a percent of the 12/31/08 balance: 88.8%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 11.5%;
12/31/08 balance per SCAP: 10.4%;
Difference: 1.1%;
12/31/09 as a percent of the 12/31/08 balance: 111.0%.
Tier 1 common capital ratio;
Actual at 12/31/09: 7.1%;
12/31/08 balance per SCAP: 6.6%;
Difference: 0.5%;
12/31/09 as a percent of the 12/31/08 balance: 108.3%.
Total asset losses;
Actual for year ended 12/31/09: $2.2 billion;
2-year SCAP estimate: $9.2 billion;
GAO 1-year pro rate estimate: $4.6 billion;
Difference: ($2.4 billion);
Actual as a percent of the 12/31/08 balance: 48.8%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $1.0 billion;
GAO 1-year pro rate estimate: $0.5 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: 36.7%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.4 billion;
2-year SCAP estimate: $1.1 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 72.0%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $1.2 billion;
GAO 1-year pro rate estimate: $0.6 billion;
Difference: ($0.3 billion);
Actual as a percent of the 12/31/08 balance: 43.2%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $1.1 billion;
2-year SCAP estimate: $4.9 billion;
GAO 1-year pro rate estimate: $2.5 billion;
Difference: ($1.3 billion);
Actual as a percent of the 12/31/08 balance: 46.7%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.0 billion);
2-year SCAP estimate: $0.2 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: (6.4%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $0.8 billion;
GAO 1-year pro rate estimate: $0.4 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 67.9%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $1.1 billion;
2-year SCAP estimate: $3.3 billion;
GAO 1-year pro rate estimate: $1.7 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 64.9%.
PPNR;
Actual for year ended 12/31/09: $2.4 billion[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $3.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $3.5 billion[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $4.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $1.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $1.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $3.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[B] PPNR includes one-time items totaling $140 million, which were not
included in SCAP.
[End of table]
Table 27: State Street Corporation:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $12.0 billion;
12/31/08 balance per SCAP: $14.1 billion;
Difference: ($2.1) billion;
12/31/09 as a percent of the 12/31/08 balance: 85.1%.
Tier 1 common capital;
Actual at 12/31/09: $10.6 billion;
12/31/08 balance per SCAP: $10.8 billion;
Difference: ($0.2) billion;
12/31/09 as a percent of the 12/31/08 balance: 97.7%.
Risk-weighted assets;
Actual at 12/31/09: $67.7 billion;
12/31/08 balance per SCAP: $69.6 billion;
Difference: ($1.9) billion;
12/31/09 as a percent of the 12/31/08 balance: 97.3%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 17.7%;
12/31/08 balance per SCAP: 20.2%;
Difference: (2.5%);
12/31/09 as a percent of the 12/31/08 balance: 87.8%.
Tier 1 common capital ratio;
Actual at 12/31/09: 15.6%;
12/31/08 balance per SCAP: 15.5%;
Difference: 0.1%;
12/31/09 as a percent of the 12/31/08 balance: 100.6%.
Total asset losses;
Actual for year ended 12/31/09: ($0.1) billion;
2-year SCAP estimate: $2.2 billion;
GAO 1-year pro rate estimate: $1.1 billion;
Difference: ($1.2 billion);
Actual as a percent of the 12/31/08 balance: (4.7%).
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: 0.0;
GAO 1-year pro rate estimate: 0.0;
Difference: 0.0;
Actual as a percent of the 12/31/08 balance: 0.0.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.3 billion;
GAO 1-year pro rate estimate: $0.2 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: 46.5%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: 0.0;
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.1 billion);
2-year SCAP estimate: $1.8 billion;
GAO 1-year pro rate estimate: $0.9 billion;
Difference: ($1.0 billion);
Actual as a percent of the 12/31/08 balance: (15.6%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.0;
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 37.5%.
Total asset losses: One-time items in SCAP[B];
Actual for year ended 12/31/09: $6.1 billion;
2-year SCAP estimate: $5.9 billion;
GAO 1-year pro rate estimate: n/a;
Difference: $0.2 billion;
Actual as a percent of the 12/31/08 balance: 103.4%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $2.5 billion;
2-year SCAP estimate: $4.3 billion;
GAO 1-year pro rate estimate: $2.2 billion;
Difference: $0.3 billion;
Actual as a percent of the 12/31/08 balance: 115.1%.
PPNR;
Actual for year ended 12/31/09: $2.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $2.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $5.9[A];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $6.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $0.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income):
[B] We broke out "other" losses into two categories--"Other" and "One-
time items." As discussed in State Street Corporation's (State Street)
May 7, 2009, press release, $5.9 billion of the amount listed in the
"Other" category in the SCAP results was a pretax charge that was
expected to occur when certain asset-backed commercial paper conduits
administered by State Street were consolidated onto its balance sheet
in 2009. Since this was a one-time charge that was realized in 2009,
this effect was segregated from more typical loss amounts for tracking
purposes. Upon consolidation, the actual amount realized was $6.1
billion, as reported in State Street's Form 10-Q for the second
quarter of 2009.
[End of table]
Table 28: SunTrust Banks, Inc.
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $18.1 billion;
12/31/08 balance per SCAP: $17.6 billion;
Difference: $0.5 billion;
12/31/09 as a percent of the 12/31/08 balance: 10.7%.
Tier 1 common capital;
Actual at 12/31/09: $10.7 billion;
12/31/08 balance per SCAP: $9.4 billion;
Difference: $1.3 billion;
12/31/09 as a percent of the 12/31/08 balance: 113.7%.
Risk-weighted assets;
Actual at 12/31/09: $139.4 billion;
12/31/08 balance per SCAP: $162.0 billion;
Difference: ($22.6) billion;
12/31/09 as a percent of the 12/31/08 balance: 86.0%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 13.0%;
12/31/08 balance per SCAP: 10.9%;
Difference: 2.1%;
12/31/09 as a percent of the 12/31/08 balance: 118.9%.
Tier 1 common capital ratio;
Actual at 12/31/09: 7.7%;
12/31/08 balance per SCAP: 5.8%;
Difference: 1.9%;
12/31/09 as a percent of the 12/31/08 balance: 132.3%.
Total asset losses;
Actual for year ended 12/31/09: $3.1 billion;
2-year SCAP estimate: $11.8 billion;
GAO 1-year pro rate estimate: $5.9 billion;
Difference: ($2.8 billion);
Actual as a percent of the 12/31/08 balance: 53.1%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $1.1 billion;
2-year SCAP estimate: $2.2 billion;
GAO 1-year pro rate estimate: $1.1 billion;
Difference: ($0.0 billion);
Actual as a percent of the 12/31/08 balance: 101.5%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.8 billion;
2-year SCAP estimate: $3.1 billion;
GAO 1-year pro rate estimate: $1.6 billion;
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: 48.8%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.5 billion;
2-year SCAP estimate: $1.5 billion;
GAO 1-year pro rate estimate: $0.8 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 69.9%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $2.8 billion;
GAO 1-year pro rate estimate: $1.4 billion;
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: 39.8%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $0.1 billion;
2-year SCAP estimate: $0.1 billion;
GAO 1-year pro rate estimate: $0.1 billion;
Difference: $0.0 billion;
Actual as a percent of the 12/31/08 balance: 115.3%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.1 billion);
2-year SCAP estimate: $0.0 billion;
GAO 1-year pro rate estimate: $0.0 billion;
Difference: ($0.1 billion);
Actual as a percent of the 12/31/08 balance: (980.2%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.2 billion;
2-year SCAP estimate: $2.1 billion;
GAO 1-year pro rate estimate: $1.1 billion;
Difference: ($0.8 billion);
Actual as a percent of the 12/31/08 balance: 21.6%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $1.4 billion;
2-year SCAP estimate: $4.7 billion;
GAO 1-year pro rate estimate: $2.4 billion;
Difference: ($0.9 billion);
Actual as a percent of the 12/31/08 balance: 61.3%.
PPNR;
Actual for year ended 12/31/09: $2.2 billion [B,C];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $4.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $3.6[B] billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $5.9 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $0.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $2.4 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $3.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[B] PPNR includes an owned debt value adjustment of ($150) million,
which was not stressed in SCAP. As SunTrust Banks Inc.'s credit
spreads narrowed during 2009, this caused the liability values to
increase. This offsets the gains SunTrust experienced in 2008 when its
credit spreads widened.
[C] PPNR includes one-time items totaling $110 million, which were not
included in SCAP.
[End of table]
Table 29: U.S. Bancorp:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $22.6 billion;
12/31/08 balance per SCAP: $24.4 billion;
Difference: ($1.8) billion;
12/31/09 as a percent of the 12/31/08 balance: 92.7%.
Tier 1 common capital;
Actual at 12/31/09: $15.9 billion;
12/31/08 balance per SCAP: $11.8 billion;
Difference: $4.1 billion;
12/31/09 as a percent of the 12/31/08 balance: 134.7%.
Risk-weighted assets;
Actual at 12/31/09: $235.2 billion;
12/31/08 balance per SCAP: $230.6 billion;
Difference: $4.6 billion;
12/31/09 as a percent of the 12/31/08 balance: 102.0%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 9.6%;
12/31/08 balance per SCAP: 10.6%;
Difference: (1.0%);
12/31/09 as a percent of the 12/31/08 balance: 90.7%.
Tier 1 common capital ratio;
Actual at 12/31/09: 6.8%;
12/31/08 balance per SCAP: 5.1%;
Difference: 1.7%;
12/31/09 as a percent of the 12/31/08 balance: 132.5%.
Total asset losses;
Actual for year ended 12/31/09: $4.3 billion;
2-year SCAP estimate: $15.7 billion;
GAO 1-year pro rate estimate: $8.0 billion;
Difference: ($3.6 billion);
Actual as a percent of the 12/31/08 balance: 54.3%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $0.5 billion;
2-year SCAP estimate: $1.8 billion;
GAO 1-year pro rate estimate: $0.9 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: 54.3%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $0.3 billion;
2-year SCAP estimate: $1.7 billion;
GAO 1-year pro rate estimate: $0.9 billion;
Difference: ($0.5 billion);
Actual as a percent of the 12/31/08 balance: 39.8%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $2.3 billion;
GAO 1-year pro rate estimate: $1.2 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 50.9%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $0.6 billion;
2-year SCAP estimate: $3.2 billion;
GAO 1-year pro rate estimate: $1.6 billion;
Difference: ($1.0 billion);
Actual as a percent of the 12/31/08 balance: 38.6%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: $2.8 billion;
GAO 1-year pro rate estimate: $1.4 billion;
Difference: ($0.4 billion);
Actual as a percent of the 12/31/08 balance: 73.6%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: $0.5 billion;
2-year SCAP estimate: $1.3 billion;
GAO 1-year pro rate estimate: $0.7 billion;
Difference: ($0.2 billion);
Actual as a percent of the 12/31/08 balance: 69.4%.
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [A];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $0.8 billion;
2-year SCAP estimate: $2.8 billion;
GAO 1-year pro rate estimate: $1.4 billion;
Difference: ($0.6 billion);
Actual as a percent of the 12/31/08 balance: 57.7%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $7.1 billion;
2-year SCAP estimate: $13.7 billion;
GAO 1-year pro rate estimate: $6.9 billion;
Difference: $0.2 billion;
Actual as a percent of the 12/31/08 balance: 103.3%.
PPNR;
Actual for year ended 12/31/09: $8.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $8.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $8.4[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $8.3 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $1.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $3.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $5.1 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
Table 30: Wells Fargo & Company:
Dollars in billions:
Tier 1 capital;
Actual at 12/31/09: $93.8 billion;
12/31/08 balance per SCAP: $86.4 billion;
Difference: $7.4 billion;
12/31/09 as a percent of the 12/31/08 balance: 108.6%.
Tier 1 common capital;
Actual at 12/31/09: $65.5[A] billion;
12/31/08 balance per SCAP: $33.9 billion;
Difference: $3.6 billion;
12/31/09 as a percent of the 12/31/08 balance: 193.2%.
Risk-weighted assets;
Actual at 12/31/09: $1,013.6 billion;
12/31/08 balance per SCAP: $1,082.3 billion;
Difference: ($68.7) billion;
12/31/09 as a percent of the 12/31/08 balance: 93.7%.
Tier 1 risk-based ratio;
Actual at 12/31/09: 9.3%;
12/31/08 balance per SCAP: 8.0%;
Difference: 1.3%;
12/31/09 as a percent of the 12/31/08 balance: 115.7%.
Tier 1 common capital ratio;
Actual at 12/31/09: 6.5%;
12/31/08 balance per SCAP: 3.1%;
Difference: 3.4%;
12/31/09 as a percent of the 12/31/08 balance: 208.4%.
Total asset losses;
Actual for year ended 12/31/09: $18.0 billion;
2-year SCAP estimate: $86.1 billion;
GAO 1-year pro rate estimate: $43.1 billion;
Difference: ($25.1 billion);
Actual as a percent of the 12/31/08 balance: 41.7%.
Total asset losses: First-lien mortgages;
Actual for year ended 12/31/09: $3.0 billion;
2-year SCAP estimate: $32.4 billion;
GAO 1-year pro rate estimate: $16.2 billion;
Difference: ($13.2 billion);
Actual as a percent of the 12/31/08 balance: 18.4%.
Total asset losses: Second/junior lien mortgages;
Actual for year ended 12/31/09: $4.9 billion;
2-year SCAP estimate: $14.7 billion;
GAO 1-year pro rate estimate: $7.4 billion;
Difference: ($2.5 billion);
Actual as a percent of the 12/31/08 balance: 66.1%.
Total asset losses: Commercial and industrial loans;
Actual for year ended 12/31/09: $2.8 billion;
2-year SCAP estimate: $9.0 billion;
GAO 1-year pro rate estimate: $4.5 billion;
Difference: ($1.7 billion);
Actual as a percent of the 12/31/08 balance: 61.5%.
Total asset losses: Commercial real estate loans;
Actual for year ended 12/31/09: $1.5 billion;
2-year SCAP estimate: $8.4 billion;
GAO 1-year pro rate estimate: $4.2 billion;
Difference: ($2.7 billion);
Actual as a percent of the 12/31/08 balance: 35.8%.
Total asset losses: Credit card loans;
Actual for year ended 12/31/09: $2.6 billion;
2-year SCAP estimate: $6.1 billion;
GAO 1-year pro rate estimate: $3.1 billion;
Difference: ($0.5 billion);
Actual as a percent of the 12/31/08 balance: 83.7%.
Total asset losses: Securities (available for sale and held to
maturity);
Actual for year ended 12/31/09: ($0.2 billion);
2-year SCAP estimate: $4.2 billion;
GAO 1-year pro rate estimate: $2.1 billion;
Difference: ($2.3 billion);
Actual as a percent of the 12/31/08 balance: (9.8%).
Total asset losses: Trading and counterparty;
Actual for year ended 12/31/09: [B];
2-year SCAP estimate: n/a;
GAO 1-year pro rate estimate: n/a;
Difference: n/a;
Actual as a percent of the 12/31/08 balance: n/a.
Total asset losses: Other;
Actual for year ended 12/31/09: $3.5 billion;
2-year SCAP estimate: $11.3 billion;
GAO 1-year pro rate estimate: $5.7 billion;
Difference: ($2.1 billion);
Actual as a percent of the 12/31/08 balance: 62.1%.
Resources other than capital to absorb losses (Total PPNR less change
in ALLL);
Actual for year ended 12/31/09: $36.1 billion;
2-year SCAP estimate: $60.0 billion;
GAO 1-year pro rate estimate: $30.0 billion;
Difference: $6.1 billion;
Actual as a percent of the 12/31/08 balance: 120.5%.
PPNR;
Actual for year ended 12/31/09: $39.6 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Net interest income (expense);
Actual for year ended 12/31/09: $46.9 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Noninterest income;
Actual for year ended 12/31/09: $41.5[B];
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
PPNR: Less: noninterest expense;
Actual for year ended 12/31/09: $48.8 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL);
Actual for year ended 12/31/09: $3.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/08;
Actual for year ended 12/31/09: $1.0 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Change in allowance for loan and lease losses (ALLL): ALLL at 12/31/09;
Actual for year ended 12/31/09: $24.5 billion;
2-year SCAP estimate: [Empty];
GAO 1-year pro rate estimate: [Empty];
Difference: [Empty];
Actual as a percent of the 12/31/08 balance: [Empty].
Source: GAO analysis of Federal Reserve and SNL Financial data.
Note: N/a means not applicable.
[A] The tier 1 common calculation has been adjusted to provide for
appropriate treatment of preferred shares Wells Fargo & Company (Wells
Fargo) issued as a part of its Employee Stock Ownership Plan (ESOP).
Each share of ESOP preferred stock released from the unallocated
reserve of the 401(k) plan is converted into shares of Wells Fargo's
common stock based on the stated value of the ESOP preferred stock and
the current market price of Wells Fargo's common stock. Wells Fargo
sells ESOP preferred stock to its 401(k) plan and lends the 401(k)
plan cash to purchase those shares. The loan is recorded as "Unearned
ESOP Preferred Shares." While the ESOP preferred shares are counted as
an addition to equity, the loans recorded as Unearned ESOP Preferred
Shares are treated as a reduction to equity, and so there is no net
impact on the equity accounts (including tier 1 capital). However, the
tier 1 common capital calculation removes the ESOP preferred shares
without also removing the corresponding loans recorded as Unearned
ESOP Preferred Shares. After consulting with Wells Fargo, GAO adjusted
the tier 1 common capital calculation by removing the $442 million of
Unearned ESOP Preferred Shares outstanding as of December 31, 2009
(the Unearned ESOP Preferred Shares is a negative amount; thus,
removing this item leads to the addition of $442 million in tier 1
capital), which is consistent with SCAP's treatment.
[B] Trading and counterparty positions were not stressed because the
total portfolio is less than the $100 billion required for stress
testing in SCAP, but trading (gain) loss information for this BHC was
included in the "trading revenue" line of Schedule HI of the Y-9C in
2009. In SCAP, the projections of trading gains or losses for this BHC
were included in the estimate of PPNR rather than the trading and
counterparty line. Therefore, we have included the actual trading
results in PPNR (specifically noninterest income).
[End of table]
[End of section]
Appendix IV: Comments from the Board of Governors of the Federal
Reserve System:
Board Of Governors Of The Federal Reserve System:
Ben S. Bernanke, Chairman:
Washington, DC 20551:
September 27, 2010:
Ms. Orice M. Williams:
Director:
Financial Markets and Community Investment:
Government Accountability Office:
441 G Street, NW:
Washington, D.C. 20548:
Dear Ms. Williams:
The Supervisory Capital Assessment Program (SCAP) was a very
successful program that helped to restore confidence in the banking
system by assessing the potential capital needs of the largest bank
holding companies under a scenario of an economic environment that was
more adverse than anticipated at the time. The program resulted in
significant additional capital being raised by the banking industry
and provided the public with assurance that these very large and
complex institutions would remain viable even in the face of more
severely negative economic conditions.
The Government Accountability Office's (GAO's) report "Bank Stress
Test Offers Lesson as Regulators Take Further Actions to Strengthen
Supervisory Oversight," GA0-10-861, recognizes the success of the SCAP
and recommends five ways to build on those successes. These
recommendations relate to actions the Federal Reserve already is
undertaking, either on its own initiative or as part of the
implementation of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank Act).
Recommendation One: The Chairman of the Federal Reserve should direct
the Division of Banking Supervision and Regulation to compare the
performance of the 19 bank holding companies against the more adverse
scenario projections following the completion of the two-year period
covered in the SCAP exercise ending December 31, 2010, and disclose
the results of the analysis to the public.
As we have noted in the past, the size and character of the bank
holding companies has, in many cases, changed materially over the
interim period, making before-and-after comparisons difficult and
potentially misleading. In addition, the SCAP process was not designed
as a tool for measuring bank holding company performance over the
course of the 2009 to 2010 period, but rather was designed to estimate
the potential capital needs of bank holding companies under a more-
adverse—than-anticipated economic environment and during a very
turbulent time for the economy in early 2009. Given that the SCAP was
designed to estimate potential losses and resulting capital needs in a
worse-than-anticipated scenario, measuring performance against the
estimates may imply an attempt to test the accuracy of these
estimates. By design, the SCAP used estimates of potential losses in a
scenario that has not materialized, and thus would not be expected to
accurately reflect the BBC's losses and overall operating performance
over the two-year period ending at year-end 2010. With these important
considerations and limitations in mind, the Federal Reserve intends to
provide a public assessment of the performance of the firms relative
to the loss and pre-provision net revenue estimates under the "more
adverse scenario" used in the SCAP. The Federal Reserve will
coordinate with the Federal Deposit Insurance Corporation (FDIC) and
the Office of the Comptroller of the Currency (OCC) on this
assessment, as well as on designing the specifics of what will be
publicly reported.
Recommendation Two: That the Chairman of the Federal Reserve, in
consultation with the heads of the FDIC and OCC, should develop a plan
that reconciles divergent views on transparency and allows for
increased transparency in the regular supervisory process,
specifically addressing steps for releasing supervisory methodologies
and analytical results for stress testing.
The recently passed Dodd-Frank Act requires annual stress tests for
certain financial institutions and further requires the disclosure of
certain stress test results. The Dodd-Frank Act also requires the
federal regulatory agencies, including the Federal Reserve, FDIC, and
OCC, to develop consistent and comparable regulations governing the
publications of the results of these required stress tests. The
Federal Reserve will coordinate with the other agencies in the
development of these regulations. In addition, the Federal Reserve
will continue to examine options for increasing the information that
supervisors may make valuable.
Recommendation Three: That the Chairman of the Federal Reserve, in
consultation with the heads of the FDIC and OCC, should develop more
specific criteria to include in its guidance to examiners for
assessing the quality of stress tests that are used in firms' internal
capital assessment and capital planning processes, and for how these
tests inform bank holding companies' internal capital adequacy
assessments and capital planning.
The Federal Reserve is in the process of developing guidance for its
examiners regarding the assessment of stress testing procedures. Once
the guidance is completed it will be supplemented in a manner that is
consistent with this recommendation. For purposes of sharing best
practices and carrying out the Dodd-Frank Act, the Federal Reserve
will continue to consult with the FDIC and OCC regarding general
principles, common to all supervisors, to guide regulatory agencies
when evaluating stress testing.
Recommendation Four: That the Chairman of the Federal Reserve, in
consultation with the heads of the FDIC and OCC, should fully develop
the Federal Reserve's plan for maintaining and improving the use of
data, risk identification and assessment infrastructure, and requisite
systems consistent with new responsibilities under the Dodd-Frank Act,
and should disseminate these enhancements among the Federal Reserve
System and other regulators and new organizations established under
the Dodd-Frank Act.
As the recommendation suggests, the Federal Reserve has taken a number
of steps to enhance risk identification, including data collection and
dissemination.
The Federal Reserve will continue to consult with the FDIC and OCC on
best practices in the areas of risk assessment and data collection and
sharing, and will ensure the continued dissemination of these
improvements throughout the Federal Reserve System. The Federal
Reserve will also continue to provide information about these
enhancements to other regulators and, as appropriate, to new
organizations established by the Dodd-Frank Act.
Recommendation Five: That the Chairman of the Federal Reserve, in
consultation with the heads of the FDIC and OCC, should take further
steps to more effectively coordinate and communicate multiagency
activities.
As noted in the GAO report, the SCAP process is considered by many to
be an example of effective inter-agency coordination and communication
in relation to a multiagency activity, but it should be noted that it
is simply the most public example. The agencies coordinate on
supervisory issues on a daily basis and have done so for many years.
The Federal Reserve believes these consultations result in more
effective and uniform supervisory practices and will continue its
practice of consulting with the FDIC and OCC, especially in the
context of implementation of the Dodd-Frank Act.
Sincerely,
Signed by:
Ben S. Bernanke:
[End of section]
Appendix V: Comments from the Department of the Treasury's Office of
Financial Stability:
Department Of The Treasury:
Assistant Secretary:
Washington, DC 20220:
September 14, 2010:
Thomas J. McCool:
Director, Center for Economics Applied Research and Methods:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. McCool:
Thank you for providing the Department of the Treasury ("Treasury") an
opportunity to review and comment on your recent report on the
Troubled Asset Relief Program ("TARP") titled, Bank Stress Test Offers
Lessons as Regulators Take Further Actions to Strengthen Supervisory
Oversight ("Draft Report").
Treasury appreciates the GAO's comprehensive review of the Supervisory
Capital Assessment Program ("SCAP") and its acknowledgement that SCAP
met its goals of providing a comprehensive, forward-looking assessment
of risk on the balance sheets of our largest banks. By doing so with
unprecedented transparency, the SCAP strengthened market confidence in
the banking system and led to significant increase in the level and
quality of capital held by the largest banks. The GAO issued no
recommendations to Treasury in the Draft Report.
Treasury looks forward to reviewing the final audit report when
issued. We thank you again for your diligence and continuing work in
reviewing Treasury's efforts to stabilize the financial system.
Sincerely,
Signed by:
Herbert M. Allison, Jr.
Assistant Secretary for Financial Stability:
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Orice Williams Brown, (202) 512-8678 or williamso@gao.gov:
Staff Acknowledgments:
Daniel Garcia-Diaz (Assistant Director), Michael Aksman, Emily
Chalmers, Rachel DeMarcus, Laurier Fish, Joe Hunter, William King,
Matthew McDonald, Sarah M. McGrath, Timothy Mooney, Marc Molino, Linda
Rego, and Cynthia Taylor made important contributions to this report.
[End of section]
Footnotes:
[1] Treasury, Financial Stability Plan (Feb. 10, 2009). SCAP was a key
component of the Capital Assistance Program.
[2] The other federal banking regulators involved in SCAP were the
Federal Deposit Insurance Corporation and the Office of the
Comptroller of the Currency. The Office of Thrift Supervision did not
participate. The Federal Reserve led the SCAP stress test since it is
the primary federal bank regulator for bank holding companies.
[3] The 19 BHCs each had at least $100 billion in risk-weighted assets
as of December 31, 2008, meeting the established threshold for
required participation in the SCAP stress test. Risk-weighted assets
are the total assets and off-balance sheet items, adjusted for risks
that institutions hold. A BHC is a company that owns or controls one
or more banks or one that owns or controls one or more BHCs. See 12
U.S.C. § 1841(a). Since a BHC may also own another BHC, which in turn
owns or controls a bank, the company at the top of the ownership chain
is commonly called the top holder. The Federal Reserve is responsible
for regulating and supervising BHCs, even if the bank owned by the
holding company is under the primary supervision of a different
federal banking agency. For example, the Federal Reserve is
responsible for regulating and supervising Citigroup Inc. (the BHC)
and the Office of the Comptroller of the Currency is responsible for
regulating and supervising Citibank N.A. (the main bank in the holding
company structure).
[4] Capital is a source of long-term funding, contributed largely by a
bank's equity stockholders and its own returns in the form of retained
earnings that provides banks with a cushion to absorb unexpected
losses. A stress test is a "what-if" scenario that is not a prediction
or expected outcome of the economy.
[5] GAO is required to report at least every 60 days on TARP
activities and performance. TARP was authorized under the Emergency
Economic Stabilization Act of 2008 (EESA), Pub. L. No. 110-343, 122
Stat. 3765 (2008), codified at 12 U.S.C. §§ 5201 et seq. EESA
originally authorized Treasury to purchase or guarantee up to $700
billion in troubled assets. The Helping Families Save Their Homes Act
of 2009, Pub. L. No. 111-22, Div. A, 123 Stat. 1632 (2009), codified
at 12 U.S.C. § 5225(a)(3), amended ESSA to reduce the maximum
allowable amount of outstanding troubled assets under ESSA by almost
$1.3 billion, from $700 billion to $698.741 billion.
[6] 12 U.S.C. § 5226.
[7] GAO, Troubled Asset Relief Program: June 2009 Status of Efforts to
Address Transparency and Accountability Issues, [hyperlink,
http://www.gao.gov/products/GAO-09-658] (Washington, D.C.: June 2009).
[8] Percent change in the annual average of real GDP. GDP is defined
as the total market value of goods and services produced domestically
during a given period (i.e., one year).
[9] Financial institutions that were not subject to the stress test
could, after supervisory review, also apply for capital from CAP if
they were in need of additional capital.
[10] Common stock is a security that represents ownership in a company
and gives the stockholder the right to vote for the company's board of
directors and benefit from its financial success. Noncumulative
perpetual preferred stock is a security that has no fixed maturity
date and pays its stated dividend forever or "in perpetuity," but any
unpaid dividends do not accumulate or accrue to stockholders.
[11] In general, tier 1 common capital is voting common equity subject
to certain deductions from capital.
[12] For example, to be well-capitalized under Federal Reserve
definitions, on a consolidated basis, a BHC must have a tier 1 risk-
based capital ratio of at least 6 percent of total risk-weighted
assets, among other things, 12 C.F.R. § 225.2(r)(1)(ii).
[13] PPNR is defined as net interest income plus noninterest income
minus noninterest expense.
[14] Trading book positions and counterparty exposures were stress
tested as of February 20, 2009.
[15] These statements became effective on January 1, 2010, and require
banking organizations to bring onto their balance sheets off-balance
sheet positions. However, for regulatory purposes, the BHCs and other
institutions may defer bringing such positions onto their balance
sheets until the end of 2010.
[16] Subprime mortgages are mortgages granted to borrowers whose
credit history includes significant impairments resulting in lower
credit scores.
[17] For a more detailed discussion about risk management practices in
place during the market turmoil, see the following reports: Senior
Supervisors Group, Observations on Risk Management Practices during
the Recent Market Turbulence (New York, Mar. 6, 2008); The President's
Working Group on Financial Markets, Policy Statement on Financial
Market Developments (March 2008); International Monetary Fund, Global
Financial Stability Report: Containing Systemic Risk and Restoring
Financial Soundness (Washington, D.C., April 2008); Financial
Stability Forum, Report of the Financial Stability Forum on Enhancing
Market and Institutional Resilience (April 2008); Institute of
International Finance, Final Report of the IIF Committee on Market
Best Practices: Principles of Conduct and Best Practice
Recommendations (July 2008); Credit Risk Management Policy Group III,
Containing Systemic Risk: The Road to Reform (August 2008); and Senior
Supervisors Group, Risk Management Lessons from the Global Banking
Crisis of 2008 (Oct. 21, 2009).
[18] The Basel Committee seeks to improve the quality of banking
supervision worldwide, in part by developing broad supervisory
standards. The Basel Committee consists of central bank and regulatory
officials from 27 member countries. The Basel Committee's supervisory
standards are also often adopted by nonmember countries. See Basel
Committee on Banking Supervision, Principles for Sound Stress Testing
Practices and Supervision. (Basel, Switzerland, May 2009).
[19] Regulators used the Case-Shiller 10-City Composite index to
forecast changes in housing prices.
[20] The unemployment rate is the number of jobless people who are
available for work but not currently employed and are actively seeking
jobs, expressed as a percentage of the labor force.
[21] According to the Federal Reserve's SCAP design and implementation
document, the professionals are the Consensus Forecasts, Blue Chip
survey, and Survey of Professional Forecasters.
[22] ALLL is the capital reserve set aside to cover anticipated losses.
[23] Resources available to absorb losses is defined as PPNR less the
change in ALLL from December 31, 2008, to December 31, 2010.
[24] Financial Accounting Standards Board position numbers 115-2 and
124-2 focus on whether firms with debt securities held in the
available for sale and held to maturity accounts intended or would be
required to sell securities at a lower price than its cost basis.
Generally accepted accounting principles are a widely accepted set of
rules, conventions, standards, and procedures for reporting financial
information established by the Financial Accounting Standards Board.
[25] Other than temporarily impaired write down is measured as the
difference between a security's book value and market value.
[26] See Financial Accounting Statements No. 166 and 167.
[27] In its June 2009 SCAP analysis report, the Congressional
Oversight Panel also noted that there was a lack of transparency about
the linkage between the loan losses and the three macroeconomic
assumptions.
[28] According to the Federal Reserve, legacy loans refer to those
bank loans made during the 2005 to 2007 period. Underwriting standards
refer to guidelines used by lenders to ensure that loans meet credit
standards and that the terms and conditions of a loan are appropriate
to its risk and maturity.
[29] Loss rate ranges under the more adverse scenario were later
tailored to each BHC.
[30] Other forms of raising capital included the use of deferred tax
assets (DTA), employee stock option awards, and restriction on
dividend payments. A DTA represents the amount by which taxes can be
reduced in future years as a result of temporary tax differences for
financial reporting and tax reporting purposes. DTAs are includable as
tier 1 capital up to no more than 10 percent of a BHC's tier 1 capital.
[31] The SCAP results required GMAC to raise a total of $1l.5 billion
in capital, of which $9.1 billion had to be in new equity capital. On
May 21, 2009, Treasury made a capital investment of $3.5 billion in
GMAC via the TARP Automotive Industry Financing Program to be applied
as a down payment towards GMAC's SCAP capital buffer of $9.1 billion
in new equity capital. GMAC had to raise the remaining amount of $5.6
billion by the November 9, 2009, deadline from either the private
markets or through further Treasury assistance. In December 2009,
Treasury converted its existing $5.25 billion of preferred stock into
mandatorily convertible preferred stock and converted $3 billion of
existing GMAC mandatorily convertible preferred securities into common
equity that allowed GMAC to meet its total SCAP capital requirement of
$11.5 billion.
[32] The Automotive Industry Financing Program was created in December
2008 by Treasury under TARP to prevent a significant disruption of the
American automotive industry. Treasury determined that such a
disruption would pose a systemic risk to financial market stability
and have a negative effect on the U.S. economy.
[33] Tier 1 common capital ratio equals tier 1 common capital divided
by total risk-weighted assets.
[34] Tier 1 risk-based capital ratio equals tier 1 capital divided by
total risk-weighted assets.
[35] A basis point is a common measure used in quoting yields on
bills, notes, and bonds and represents 1/100 of a percent of yield.
For example, an increase from 4.35 percent to 4.45 percent would be an
increase of 10 basis points.
[36] GMAC is the only nonpublic BHC that was included in SCAP.
[37] The asset categories are first-lien mortgages consisting of
prime, Alt-A, and subprime residential mortgages; second/junior lien
mortgages consisting of closed-end junior liens and home equity line
of credit residential mortgages; commercial and industrial loans
consisting of large corporate and middle market, small business, and
asset-based lending loans; commercial real estate loans consisting of
construction and land development, multifamily, and nonfarm
nonresidential loans; credit card loans, consisting of credit cards;
other loans consisting of auto, personal, and student loans, and
farmland lending, loans to depository institutions, loans to
governments, and other categories; securities (available for sale and
held to maturity) consisting of a majority of Treasury securities,
government agency securities, sovereign debt, and high-grade municipal
securities and corporate bonds, equities, asset-backed securities,
commercial mortgage-backed securities, and nonagency residential
mortgage-backed securities; and trading and counterparty, or trading
book positions (e.g., securities such as common stock and derivatives).
[38] As of September 22, 2010, Treasury has a 56.3 percent ownership
stake in GMAC.
[39] General Motors Company and Chrysler Group LLC are the new names
that the former GM and Chrysler adopted, respectively, after emerging
from bankruptcy.
[40] The Federal Reserve approved GMAC's application to become a BHC
on December 24, 2008.
[41] Lifetime losses are those losses which occur from origination to
the life-end of the loans.
[42] According to an April 12, 2010, GMAC press release, GMAC's
mortgage subsidiary--Residential Capital, LLC--agreed to sell its
European mortgage assets and businesses to Fortress Investment Group
LLC. These transactions represent approximately 10 percent of
Residential Capital, LLC's December 31, 2009, total assets and
approximately 40 percent of total assets on a pro forma basis,
adjusted for the required accounting treatment for certain off-balance
sheet securitizations that are recorded on-balance sheet effective
January 1, 2010, (see Financial Accounting Statement No. 167). The
assets in the transactions are valued at approximately the levels
established in the fourth quarter of 2009, and there is no material
gain or loss expected. GMAC reported positive earnings for the first
and second quarters of 2010, although it continued to show losses in
certain portfolios. These were its first profits since the fourth
quarter of 2008. GMAC's tier 1 common capital ratio also improved to 5
percent and 5.2 percent, respectively.
[43] Trading account assets are assets held to hedge risks or
speculate on price changes for the bank or its customers. Because the
more adverse scenario was plausible but unlikely to occur, the actual
results were not intended and should not be expected to align with
such scenario.
[44] The five BHCs are The Bank of New York Mellon Corporation;
Citigroup; MetLife, Inc.; SunTrust; and U.S. Bancorp.
[45] Based on discussion with The Bank of New York Mellon Corporation
officials and as stated in a October 20, 2009, company press release,
the BHC's securities portfolio underwent a significant restructuring
in the third quarter of 2009 in order to reduce its balance sheet
risk, causing it to recognize significant losses in that period. The
officials noted that the BHC sold off many of its riskiest holdings in
that period, including many Alt-A residential mortgage-backed
securities, so that they expect to see gains in this portfolio in the
future, keeping the final 2-year loss under the SCAP projected amount.
As of the second quarter of 2010 year to date, the BHC experienced a
gain of $20 million in this portfolio.
[46] A counterparty loss is a loss resulting from a counterparty to a
transaction failing to fulfill its financial obligation in a timely
manner or from a credit valuation adjustment.
[47] These BHCs include Bank of America, Citigroup, Goldman Sachs,
JPMorgan Chase & Co., and Morgan Stanley were stress tested in SCAP.
[48] Limitations of the Y-9C make it difficult to compare the actual
results to the projections of SCAP. The trading and counterparty data
in the Y-9C includes both customer derived revenue from transactions
for BHCs that operate as broker-dealers, as well as gains and losses
from proprietary trading and associated expenses. These items are
presented on a net basis in the Y-9C. For the five BHCs that had their
trading portfolios stressed (Goldman Sachs, Morgan Stanley, Citigroup,
JPMorgan Chase & Co., and Bank of America), the trading and
counterparty line item is based on projections of gains or losses from
proprietary trading, but preprovision net revenue (specifically
noninterest revenue) included projections of gains or losses from
customer derived revenue from transactions due to operations as a
broker-dealer. These items cannot be segregated based on the Y-9C data
and therefore are included in the net amount in both the trading and
counterparty and noninterest income line items above. As a result of
this limitation, the net amount of the trading gains or losses and
preprovision net revenue in the table may be over-or understated.
[49] In 2008, Lehman Brothers Holdings Inc. failed, Merrill Lynch &
Co. Inc. was acquired by Bank of America, and The Bear Stearns
Companies Inc. was sold to JP Morgan Chase & Co.
[50] Wholesale funding describes a class of funding used by banks to
meet their liquidity needs. Wholesale funding providers include, but
are not limited to, money market funds, trust funds, pension funds,
corporations, banks, government agencies, and insurance companies.
Wholesale funding instruments include, but are not limited to, federal
funds, public funds, Federal Home Loan Bank advances, the Federal
Reserve's primary credit program, foreign deposits, brokered deposits,
and deposits obtained through the Internet or certificate of deposits
listing services.
[51] Nonperforming loans, for the purposes of this figure, represent
the total of loans that are either 90 plus days past due or in
nonaccrual status. As defined by the instructions to the Y-9C, an
asset is in nonaccrual status if: (1) it is maintained on a cash basis
because of deterioration in the financial condition of the borrower,
(2) payment in full of principal or interest is not expected, or (3)
principal or interest as been in default for a period of 90 days or
more unless the asset is both well secured and in the process of
collection. Per the Y-9C instructions, an asset is 90 plus days past
due if payment is due and unpaid for 90 days or more, and if that
asset is not in nonaccrual status.
[52] Pub. L. No. 111-203, 124 Stat. 1376 (2010); Pub. L. No. 111-24,
123 Stat. 1734 (2009).
[53] Ben S. Bernanke, "The Supervisory Capital Assessment Program--One
Year Later," speech delivered at the Federal Reserve Bank of Chicago
2010 46th Annual Conference on Bank Structure and Competition
(Chicago, Illinois, May 6, 2010). Daniel K. Tarullo, "Lessons from the
Crisis Stress Tests," speech delivered at the Federal Reserve Board
2010 International Research Forum on Monetary Policy (Washington,
D.C., Mar. 26, 2010).
[54] Daniel K. Tarullo, "Involving Markets and the Public in Financial
Regulation," speech delivered at the Council of Institutional
Investors Meeting (Washington, D.C., Apr. 13, 2010). Bernanke "The
Supervisory Capital Assessment Program--One Year Later" (2010).
[55] GAO, Troubled Asset Relief Program: June 2009 Status of Efforts
to Address Transparency and Accountability Issues, [hyperlink,
http://www.gao.gov/products/GAO-09-658] (Washington, D.C.: June 17,
2009).
[56] The act also establishes the Financial Stability Oversight
Council and Treasury's Office of Financial Research in order to
further the goals of effective systemic risk measurement.
[57] GAO, Financial Regulation: Review of Regulators' Oversight of
Risk Management System at a Limited Number of Large, Complex Financial
Institutions, [hyperlink, http://www.gao.gov/products/GAO-09-499T]
(Washington, D.C.: Mar. 18, 2009).
[58] Basel II is an international risk-based capital framework that
aims to align minimum capital requirements with enhanced risk
measurement techniques and to encourage banks to develop a more
disciplined approach to risk management. It was organized with three
main principles of capital known as pillars: Pillar 1 relates to
minimum capital requirements. Pillar 2 relates to the supervisory
review of an institution's internal assessment process and capital
adequacy relative to the institution's overall risk profile. Pillar 3
relates to the effective use of disclosure to strengthen market
discipline as a complement to supervisory efforts.
[59] These portfolios were the only ones tested under the SCAP for
which the positions were taken as of a different date than December
31, 2008. Positions were taken as of February 20, 2009, as it was both
more relevant to the actual risk exposure of the BHCs at the time of
SCAP and easier for the BHCs to provide.
[60] GAO, Financial Market Regulation: Agencies Engaged in
Consolidated Supervision Can Strengthen Performance Measurement and
Collaboration, [hyperlink, http://www.gao.gov/products/GAO-07-154]
(Washington, D.C.: Mar. 15, 2007).
[61] The Y-9C is a Federal Reserve reporting form that collects basic
financial data from a domestic BHC on a consolidated basis in the form
of a balance sheet, an income statement, and detailed supporting
schedules, including a schedule of off balance-sheet items. The
information is used to assess and monitor the financial condition of
BHC organizations, which may include parent, bank, and nonbank
entities. The Y-9C is a primary analytical tool used to monitor
financial institutions between on-site inspections and is filed
quarterly as of the last calendar day of March, June, September, and
December. The Federal Reserve used such format to collect data from
the BHCs for purposes of conducting the SCAP stress test.
[62] For a more detailed discussion about risk-management practices in
place during the market turmoil, see the following reports: Senior
Supervisors Group, Observations on Risk Management Practices during
the Recent Market Turbulence (New York, Mar. 6, 2008); International
Monetary Fund, Global Financial Stability Report: Containing Systemic
Risk and Restoring Financial Soundness (Washington, D.C.: April 2008);
Financial Stability Forum, Report of the Financial Stability Forum on
Enhancing Market and Institutional Resilience (April 2008); Institute
of International Finance, Final Report of the IIF Committee on Market
Best Practices: Principles of Conduct and Best Practice
Recommendations (July 2008); Credit Risk Management Policy Group III,
Containing Systemic Risk: The Road to Reform (August 2008); Senior
Supervisors Group, Risk Management Lessons from the Global Banking
Crisis of 2008 (Oct. 21, 2009); Basel Committee on Banking
Supervision, Principles for Sound Stress Testing Practices and
Supervision (Basel, Switzerland, May 2009); and the President's
Working Group on Financial Markets, Policy Statement on Financial
Market Developments (March 2008).
[63] The Office of the Thrift Supervision did not participate in
conducting the stress test.
[64] On June 30, 2009, GMAC LLC changed its corporate structure and
became GMAC Inc., and on May 10, 2010, GMAC Inc. changed its name to
Ally Financial Inc.
[65] See GAO, Financial Market Regulation: Agencies Engaged in
Consolidated Supervision Can Strengthen Performance Measurement and
Collaboration, [hyperlink, http://www.gao.gov/products/GAO-07-154]
(Washington, D.C.: Mar. 15, 2007); Financial Regulation: A Framework
for Crafting and Assessing Proposals to Modernize the Outdated U.S.
Financial Regulatory System, [hyperlink,
http://www.gao.gov/products/GAO-09-216] (Washington, D.C.: Jan. 8,
2009); Financial Regulation: Review of Regulators' Oversight of Risk
Management Systems at a Limited Number of Large, Complex Financial
Institutions, [hyperlink, http://www.gao.gov/products/GAO-09-499T]
(Washington, D.C.: Mar. 18, 2009); and Troubled Asset Relief Program:
June 2009 Status of Efforts to Address Transparency and Accountability
Issues, [hyperlink, http://www.gao.gov/products/GAO-09-658]
(Washington, D.C.: June 2009). Also, see Congressional Oversight
Panel's Stress Testing and Shoring Up Bank Capital (June 9, 2009).
[66] The BHCs had to maintain a tier 1 capital ratio of at least 6
percent of risk-weighted assets and a tier 1 common capital ratio of
at least 4 percent of risk-weighted assets at the end of 2010. PPNR is
defined as net interest income plus noninterest income minus
noninterest expense. Allowance for loan and lease losses is defined as
the capital reserve set aside to cover anticipated losses.
[67] See GAO, Assessing the Reliability of Computer-Processed Data,
Version 1, [hyperlink, http://www.gao.gov/products/GAO-02-15G]
(Washington, D.C.: September 2002).
[68] The owned debt value adjustment is an adjustment made to BHC
financial statements if the BHC chose to value its own debt on a mark-
to-market basis rather than book value. As the BHC's debt becomes
cheaper, this creates a positive impact on its financial statements,
while, as seen in 2009, the debt becomes more expensive, it has a
negative impact on the BHC's financial statements.
[69] A credit default swap spread is one measure of investors'
confidence in the banking sector. It is an agreement in which a buyer
pays a periodic fee to a seller, in exchange for protection from
certain credit events such as bankruptcy, failure to pay debt
obligations, or a restructuring related to a specific debt issuer or
issues known as the reference entity. Therefore, the credit default
swap spread, or market price, is a measure of the credit risk of the
reference entity, with a higher spread indicating a greater amount of
credit risk. When the markets' perception of the reference entity's
credit risk deteriorates or improves, the spread generally will widen
or tighten, respectively.
[70] Nonperforming loans represent the total of loans that are either
90 plus days past due or in nonaccrual status. As defined by the
instructions to the Y-9C, an asset is in nonaccrual status if: (1) it
is maintained on a cash basis because of deterioration in the
financial condition of the borrower, (2) payment in full of principal
or interest is not expected, or (3) principal or interest as been in
default for a period of 90 days or more unless the asset is both well
secured and in the process of collection. Per the Y-9C instructions,
an asset is 90 plus days past due if payment is due and unpaid for 90
days or more, and if that asset is not in nonaccrual status.
[71] The Goldman Sachs Group, Inc. and Morgan Stanley were approved by
the Federal Reserve to become BHCs on September 22, 2008; American
Express Company was approved on November 10, 2008; and GMAC LLC was
approved on December 24, 2008.
[72] See Federal Reserve's June 1, 2009, press release that sets forth
the criteria that SCAP BHCs must meet before they can pay back their
TARP investments.
[73] FDIC created this facility in November 2008 to encourage
liquidity in the banking system by guaranteeing newly issued senior
unsecured debt of banks, thrifts, and certain holding companies and by
providing full coverage of noninterest-bearing deposit transaction
accounts. The facility is scheduled to end in 2010.
[End of section]
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