Comprehensive Capital Analysis and Review (CCAR) was first implemented in 2011 as a response to the financial crisis of 2008. It introduced an annual exercise conducted by the Federal Reserve to look at weaknesses in US banks. In 2018 it underwent a few changes. One of the most important changes was the increase in the threshold for bank qualification, from $50 billion to $250 billion Secondly, introducing Stress Capital Buffer (SCB) combining the Dodd-Frank Act Stress Test (DFAST) and CCAR to maintain a minimum capital buffer.

With the recent banking crisis occurring in the US, a relevant question to ask would be if banks such as Silicon Valley Bank (SVB) were to have been covered under these same stress tests – would they still have incurred a bank run?

Well before much of the Dodd-Frank Act was rolled back in 2018, banks like SVB and Signature Bank were subject to the DFAST stress test (which was effectively a watered-down version of CCAR applying to all banks with more than $30 billion in AUM). DFAST was similar to CCAR in that banks had to report scenario-based stress projections, but it overlooked much of capital enforcement.


For Silicon Valley Bank (whose CEO Greg Becker interestingly lobbied in 2018 to raise the asset bar on the annual Dodd-Frank stress tests from $50 billion to $250 billion) and other banks, it is worth looking at 3 main risks: interest rate risk, funding risk (liquidity/depositors pulling their money out), and credit risk (not being paid back).

On the liquidity side, the 33 banks tested in 2022 had a combined fourth quarter 2021 Tier 1 capital ratio of 14.1% (significantly above the regulatory minimum of 6%). By comparison, Silicon Valley Bank held a Tier 1 capital ratio of 14.9%. Although it is not possible to claim for sure, it is likely SVB’s outsized holdings of bonds (59% assets versus 31% loans) and high capital ratio meant it would likely have passed the 2022 stress test.

For credit risk, due to the Financial Crisis of 2008, the Basel III accords laid the blueprint for Dodd-Frank, which subjected the Global Systemically Important Banks (G-SIBS) to annual stress tests from 2013. SVB’s loans and bonds were of a good credit quality with their data showing a low probability of default. The stress tests looked to have covered the credit risk sufficiently, however, the problem with SVB’s and other banks’ assets was not credit, but rather market risk, specifically to the latter mentioned… interest rate risk.

In the 2022 stress test scenarios, banks were asked to assess their risk over a 3-year horizon. In the “severely adverse scenario” the 3-month Treasury rates remained near zero during the first quarter, while the 10-year Treasury yield declined to 0.75% (this persisted in the following two quarters). Surprisingly, despite the Federal Open Market Committee’s (FOMC) indication in December of the previous year that the Federal Reserve would likely aim to double interest rates in 2023 compared to 2022—significantly surpassing the stress test projections—this expectation remained unchanged.”

So in short, it is likely that banks like SVB would have passed these stress tests. However, to blame SVB’s demise on the Fed’s exclusion of the stress tests and the parameters within it may be somewhat naive. Anyone in banking should take interest rate risk sensitivity analysis and stress tests seriously as part of their own Gap Analysis.

Under this Gap Analysis, liability managers subtract their liabilities from their assets and test interest rate moves against this to understand liquidity measurements. If stress testing is to help predict bank runs, scenarios should reflect a company’s own policies.

TS Imagine has three decades of experience in helping our clients of all sizes manage risk. Whether it be liquidity, stress testing, sensitivity analysis, projections, or historical scenarios, it is important we enable our clients to manage their own risk accordingly. We encourage our clients to use all aspects of the system alongside our out-of-the-box compliance and regulatory reports.