The new twists in the road for the future of CCAR

Henri Wajsblat, Anaplan’s Director of Financial Services for Product Marketing, interviews Comprehensive Capital Analysis Review (CCAR) expert, Kenneth Gustin, Ph.D., on regulatory reporting programs in the U.S. banking industry and the new opportunities driven by recent technology innovations.

Q: Some might say that CCAR/DFAST (Dodd-Frank Act Stress Test) has become a mundane “commoditized” regulatory reporting exercise. Why do we want to avoid this way of thinking?

A: Process matters. Data Governance and Model Governance, together with Process Governance, are keys to successfully automating the handling large data sets and end-to-end controls. At many banks, there’s still an over-dependence on spreadsheet environments and end-user-computing point solutions that present a major operational risk. End-to-end controls are the proverbial weak link in the chain.

Q: But the big banks have been doing this for years. Isn’t “good enough” good enough? Why change anything?

A: Cost matters. The cost of compliance with CCAR/DFAST requirements has been on an unsustainable trajectory over the past few years. Hiring costs and delays for regular employees, project staffing costs, cumbersome manual processes, and inefficient use of internal managers’ time, has placed a significant drain on budgets.

Agility matters too. This experience has evidenced the need to be able to quickly course-correct as models have to be updated or replaced quickly. Additionally, stress scenarios may introduce new risk drivers into the mix, and reporting requirements could evolve in terms of frequency and granularity, as other programs evolve (e.g., Fundamental Review of the Trading Book, or FRTB). Also, it is speculated that the new federal government administration could bring about fundamental modifications of the Dodd-Frank program itself.

Q: How are banks using the latest advancements in technology to tackle their financial planning and analysis (FP&A) and reporting challenges?  

A: Design matters. By virtue of an enterprise-wide design, new developments in technology can support many functional areas. These include:

• Firm-wide data management and model inventory management, as well as their auditability, as required by Dodd-Frank
• Various business use cases such as FP&A, loss forecasting (for CCAR, DFAST, Allowance for Loan and Lease Losses [ALLL], and the next-generation version known as Current Expected Credit Loss Standard [CECL] for ALLL), project workforce planning, firm-wide resource planning and budgeting, inventory management, HR staffing management, treasury (funding, capital planning, capital management), and strategic planning (market presence and financial products, Brexit, five-year plan competitive advantage simulation, etc.)
• The ability to simulate “what-if” scenarios coherently and consistently across the entire firm, which is a breakthrough, especially when the technology can handle the equivalent of several billion Excel cells with near-real-time responses