Robert, can you please tell us a little bit about yourself, your current role and professional experience?
I am SVP, Head of Quantitative Risk Analytics at City National Bank, based in Los Angeles. My role is as the head of stress testing for my organization. I coordinate the different submissions for CCAR, DFAST and Enterprise Wide Stress Testing for Canada. My prior work experience has been in investment and corporate banking, corporate finance and strategy, and asset management.
At Stress Testing USA: CCAR and DFAST, you provided insight to organizations on the verge of CCAR compliance, what key take aways can be taken from your presentation?
• The difference between DFAST and CCAR is absolutely huge. It is not an incremental step but rather a giant leap forward.
• Capital plan and actions, staffing, model granularity, level of reliance on internal vs. external data, internal vs. vendor models, coordination with IT, business line feedback, data requirements, enhanced documentation and higher governance standards are some key areas to focus on when preparing for CCAR.
• Data governance is crucial and sometimes overlooked for CCAR.
With the sheer complexity and level of standard under CCAR, how can institutions better prepare for what is coming, both for those on the verge and those predicting such growth?
Institutions should consider staffing up and training people prior to CCAR, as doing this while undergoing a CCAR transformation at the same time is very difficult.
Understand the nuances of all the schedules of the FR Y-14A, FR Y-14Q and FR Y-14M. These schedules require a vast amount of data that may not be readily available by the institutions.
Make people across the organization more aware of CCAR and stress testing early. CCAR will affect many people, from the model developers to model validators, internal audit, SMEs, business lines, the C-suite, all the way to the Board of Directors. The more they are educated on the process, the more likely they will be able to provide the level of governance in the organization necessary to execute an effective challenge.
Planning ahead is key, however with stress testing requirements changing, and curve balls with the set scenarios, how can institutions prepare for what is to come?
Be aware of the existing guidance and any new regulatory guidance that is released.
Find and hire people who have done this before. Institutional knowledge is important, but CCAR knowledge about the process is indispensable, and it does go well beyond DFAST. It is difficult to build the process from the ground up in a vacuum. Combining institutional knowledge and CCAR knowledge is the key. Consultants may be helpful in establishing the process.
How can financial institutions leverage past errors across the industry to gain better insight as to how to conduct themselves and prepare for the requirements?
Understand how other financial institutions have fared in the process. Understand the areas of focus by the regulators and weaknesses in institutional processes and governance. Read CCAR public disclosures from the banks to get a better sense of areas of importance.
How do you see the role of the stress testing professional changing in institutions moving over to CCAR?
The stress testing professional’s role will change dramatically. As I mentioned before, the shift from DFAST to CCAR is not an incremental shift but a monumental one. As such, the stress testing professional will either have to gain a great deal more understanding about each facet of the process or, if the financial institution decides to staff up dramatically, may be required to become much more specialized in a particular aspect of CCAR and stress testing.
Specific to City National Bank, as we are now a subsidiary of RBC USA Holdco Corporation as a result of the merger between Royal Bank of Canada and City National Bank that took place in November of 2015, my role has changed from being very City National specific to being a liaison across different locations, time zones and groups with RBC professionals located primarily in New York and Toronto. It is a challenging yet extremely rewarding experience to push forward together cohesively as one team.
Our 6th annual Risk Americas 2017 Convention will be taking place on May 23-24 and will feature a dedicated track on Stress Testing and Model Risk.