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New Research Estimates Credit Allocation Encouraged by CCAR Stress Tests

Mortgage and small business loans are hard hit by stress tests

The Clearing House published a new research note The Capital Allocation Inherent in the Federal Reserve’s Capital Stress Test that attempts to determine which bank customers are being favored or disadvantaged by post-crisis regulatory rules – the Federal Reserve’s Comprehensive Capital Adequacy Review (CCAR) stress test.  Specifically, the research derives the capital requirements for each category of bank asset classes in CCAR. The results show that the Federal Reserve’s CCAR stress test is imposing dramatically higher capital requirements on certain asset classes – most notably, small business loans and residential mortgages – than Basel standardized models and banks’ internal models that are approved by the Federal Reserve.

Download the Research Note