The Federal Reserve has finalized proposed changes to its CCAR stress-test regime that exempt a still broader class of large BHCs and intermediate holding companies (IHCs) than proposed from the qualitative provisions of its supervisory-test requirements. Although the quantitative requirements remain very stringent and often prove a BHC or IHC’s binding constraint regardless of all of the other capital rules, relief from the qualitative provisions of the CCAR regime does provide more certainty and thus greater investor confidence that publicly-known data provide a useful guide to potential capital distributions. This certainty in turn may enhance market capitalization for BHCs and the value of IHCs to parent banking organizations better able to count on capital upstreams. However, the final rule also reduces the ability of BHCs and IHCs to make additional, minimal capital distributions, reducing flexibility in the face of improving market conditions, M&A, or unanticipated stress.
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