Dodd-Frank Act Stress Test 2013:

Supervisory Stress Test Methodology

and Results

March 2013

B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E S Y S T E M

Dodd-Frank Act Stress Test 2013:

Supervisory Stress Test Methodology

and Results

March 2013

B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E S Y S T E M
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Executive Summary ................................................................................................................. 1

Dodd-Frank Act Stress Testing ........................................................................................... 3

Supervisory Stress Tests ............................................................................................................. 3

Company-Run Stress Tests ......................................................................................................... 5

Severely Adverse Scenario ..................................................................................................... 7

Federal Reserve Supervisory Stress Test Framework and Model

Methodology ............................................................................................................................. 9

Analytical Framework .................................................................................................................. 9

Modeling Design and Implementation ........................................................................................ 11

Federal Reserve Supervisory Stress Test Results ......................................................... 15

Stressed Regulatory Capital Ratios ............................................................................................ 15

Projected Losses ...................................................................................................................... 17

Appendix A: Severely Adverse Scenario ........................................................................ 29

Data Notes ............................................................................................................................... 34

Appendix B: Models to Project Net Income and Stressed Capital ........................ 37

Losses on the Accrual Loan Portfolio ......................................................................................... 37

Loan-Loss Provisions for the Accrual Loan Portfolio ................................................................... 42

Other Losses ............................................................................................................................ 42

Pre-Provision Net Revenue ........................................................................................................ 46

Equity Capital and Regulatory Capital ........................................................................................ 47

Appendix C: BHC-Specific Results ................................................................................. 49

iii

Contents

Executive Summary

The Federal Reserve expects large, complex bank

holding companies (BHCs) to hold sufficient capital

to continue lending to support real economic activity,

even under adverse economic conditions. Stress testing is one tool that helps bank supervisors measure

whether a BHC has enough capital to support its

operations throughout periods of stress. The Federal

Reserve previously highlighted the use of stress tests

as a means of assessing capital sufficiency under

stress during the 2009 Supervisory Capital Assessment Program (SCAP) and the 2011 and 2012 Comprehensive Capital Analysis and Review (CCAR)

exercises.1

In the wake of the financial crisis, the Congress

enacted the Dodd-Frank Wall Street Reform and

Consumer Protection Act (Dodd-Frank Act),2 which

requires the Federal Reserve to conduct an annual

stress test of large BHCs and all nonbank financial

companies designated by the Financial Stability

Oversight Council (FSOC) for Federal Reserve

supervision to evaluate whether they have sufficient

capital to absorb losses resulting from adverse economic conditions. The Dodd-Frank Act also requires

BHCs and other financial companies supervised by

the Federal Reserve to conduct their own stress tests.

The Federal Reserve adopted rules implementing

these requirements in October 2012. Under the rules,

18 BHCs are part of the Dodd-Frank Act supervisory stress tests this year (DFAST 2013).3

This report describes the hypothetical, severely

adverse scenario designed by the Federal Reserve;

provides an overview of the analytical framework

and methods used to generate the projections of revenues, expenses, losses, and the resulting post-stress

capital ratios for each of the 18 BHCs; and discloses

the results of the 2013 Dodd-Frank Act supervisory

stress test. The Federal Reserve believes that disclosure of stress test results provides valuable information to market participants and the public, enhances

transparency, and promotes market discipline. The

projections provide a unique perspective on the

robustness of the capital positions of these firms

because they incorporate detailed information about

the risk characteristics and business activities of each

BHC and because they are estimated using a consistent approach across all the BHCs, providing comparable results across firms. The Federal Reserve also

believes that providing information about the methodology used to produce the results will offer useful

context to interpret those results.

The projections were calculated using input data provided by the 18 BHCs and a set of models developed

or selected by the Federal Reserve,4

based on a hypothetical, severely adverse macroeconomic and financial market scenario developed by the Federal

Reserve. The severely adverse scenario features a

deep recession in the United States, Europe, and

Japan, significant declines in asset prices and

increases in risk premia, and a marked economic

slowdown in developing Asia. The Federal Reserve

also applied a separate global market shock to six

BHCs with large trading, private equity, and counter1 The CCAR is an annual exercise by the Federal Reserve to

ensure that institutions have robust, forward-looking capital

planning processes that account for their unique risks and sufficient capital to continue operations throughout times of economic and financial stress. As part of the CCAR, the Federal

Reserve evaluates institutions’ capital adequacy, internal capital

adequacy assessment processes, and their plans to make capital

distributions, such as dividend payments or stock repurchases,

and other actions that affect capital.

2

See 12 USC 5365(i)(1).

3 The 18 BHCs that participated in the 2013 Dodd-Frank Act

stress test are Ally Financial Inc.; American Express Company;

Bank of America Corporation; The Bank of New York Mellon

Corporation; BB&T Corporation; Capital One Financial Corporation; Citigroup, Inc.; Fifth Third Bancorp; The Goldman

Sachs Group, Inc.; JPMorgan Chase & Co.; KeyCorp; Morgan

Stanley; The PNC Financial Services Group, Inc.; Regions

Financial Corporation; State Street Corporation; SunTrust

Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company.

Although MetLife, Inc. had participated in the 2009 SCAP and

previous CCAR exercises, it did not participate in the 2013

Dodd-Frank Act stress test because it was in the process of

deregistering as a bank holding company when the exercise

began and has now completed that process.

4 A list of providers of the proprietary models and data used by

the Federal Reserve in connection with DFAST 2013 is available

in appendix B.

1
party exposures from derivatives and financing transactions.5

The models project revenues, expenses, losses, and the

resulting post-stress capital ratios for each BHC over

a nine-quarter planning horizon extending through

the end of 2014. The Federal Reserve’s projections

should not be interpreted as expected or likely outcomes for these firms, but rather as possible results

under hypothetical, severely adverse conditions. These

projections incorporate a number of conservative

modeling assumptions, but do not make explicit

behavioral assumptions about the possible actions of

a BHC’s creditors and counterparties in the scenario,

except through the severely adverse scenario’s characterizations of financial asset prices and economic

activity.

To make the projections of post-stress capital ratios

more comparable across BHCs, the projections

reflect assumptions about capital distributions prescribed in the Dodd-Frank Act stress test rule. Over

the nine-quarter planning horizon, each BHC maintains its common stock dividend payments at the

same level as the previous year, but repurchases and

issuance of common stock is assumed to be zero

except for common stock issuance associated with

expensed employee compensation.6

The results of these projections suggest that, in the

aggregate, the 18 BHCs would experience substantial

losses under the severely adverse scenario. Over the

nine quarters of the planning horizon, losses at the

18 BHCs under the severely adverse scenario are projected to be $462 billion, including losses across loan

portfolios, losses on securities held in the BHCs’

investment portfolios, trading and counterparty

credit losses from the global market shock, and other

losses. Projected net revenue before provisions for

loan and lease losses (pre-provision net revenue, or

PPNR) at the 18 BHCs over the nine quarters of the

planning horizon under the severely adverse scenario

is $268 billion, which is net of losses related to

operational-risk events and mortgage repurchases, as

well as expenses related to disposition of owned real

estate of $101 billion. Taken together, the high projected losses and low projected PPNR at the 18

BHCs results in projected net income before taxes of

-$194 billion.

These net income projections result in substantial

projected declines in regulatory capital ratios for

nearly all of the BHCs under the severely adverse scenario. As illustrated in figure 1, the aggregate tier 1

common ratio would fall from an actual 11.1 percent

in the third quarter of 2012 to a post-stress level of

7.7 percent in the fourth quarter of 2014, including

assumed capital actions for the 18 BHCs.

5 The six BHCs subject to the global market shock are Bank of

America Corporation; Citigroup, Inc.; The Goldman Sachs

Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; and

Wells Fargo & Company. See 12 CFR 252.134(b); see also

12 CFR 252.144(b)(2)(i).

6

See 12 CFR 252.146(b)(2).

Figure 1. Historical and stressed tier 1 common ratio

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Actual, Q4 2008Actual, Q4 2009Actual, Q4 2010Actual, Q4 2011

Actual, Q3 2012

Stressed, Q4 2014

Percent

Note: Aggregate capital ratios for 18 participating bank holding companies (BHCs).

Post-stress estimates are supervisory estimates under the severely adverse

scenario.

The tier 1 common ratio in the fourth quarter of 2008 includes the tier 1 common

capital and risk-weighted assets for Ally Financial Inc. as of the first quarter of

2009, as Ally was not a Y-9C filer in the fourth quarter of 2008.

2 DFAST 2013: Methodology and Results
Dodd-Frank Act Stress Testing

The Dodd-Frank Act requires the Federal Reserve to

conduct an annual supervisory stress test of BHCs

with $50 billion or more in total consolidated assets

and nonbank financial companies designated by the

FSOC for Federal Reserve supervision (collectively,

“covered companies”). The Dodd-Frank Act also

requires covered companies to conduct their own

stress tests (company-run stress tests) semiannually.7

Together, the Dodd-Frank Act supervisory stress

tests and the company-run stress tests are intended to

provide BHC management and boards of directors,

the public, and supervisors with forward-looking

information to help identify downside risks and the

potential effect of adverse conditions on capital

adequacy of these large banking organizations. The

Federal Reserve adopted rules implementing these

requirements in October 2012.

Under the implementation phase-in provisions of the

Federal Reserve’s Dodd-Frank stress test rules, only

the 18 BHCs that previously participated in the

SCAP are required to conduct company-run stress

tests during the current stress test cycle that began in

October 2012.8

Similarly, the Federal Reserve has

conducted supervisory stress tests on only these 18

BHCs for DFAST 2013. Both sets of stress tests are

also integrated into the Federal Reserve’s assessment

of capital adequacy under CCAR. Important differences between the Dodd-Frank Act supervisory

stress tests and the CCAR post-stress capital analysis

are outlined in box 1.

To provide context to the Federal Reserve’s DoddFrank Act supervisory stress test results, the following sections contain an overview of the Federal

Reserve’s Dodd-Frank Act stress test rules, focusing

on the process for the supervisory stress tests and the

requirements for company-run stress tests for covered

companies.

Supervisory Stress Tests

Under the Dodd-Frank Act stress test rules, the Federal Reserve conducts annual supervisory stress tests

to evaluate whether a covered company has the capital, on a total consolidated basis, necessary to absorb

losses and continue its operations by maintaining

ready access to funding, meeting its obligations to

creditors and other counterparties, and continuing to

serve as a credit intermediary under adverse economic and financial conditions. As part of this supervisory stress test for each covered company, the Federal Reserve projects revenue, expenses, losses, and

resulting post-stress capital levels, regulatory capital

ratios, and the tier 1 common ratio under three scenarios (baseline, adverse, and severely adverse), using

data as of September 30.

The Federal Reserve generally uses a common set of

scenarios for all covered companies in the supervisory stress test. However, the Federal Reserve may

use additional scenarios or components of scenarios

for all or a subset of the covered companies to capture salient sources of risk, and these scenarios may

use data from dates other than the end of the third

quarter. In DFAST 2013, large, complex BHCs with

significant trading activities are subject to a global

7 The Dodd-Frank Act requires all financial companies that have

more than $10 billion in total consolidated assets and are regulated by a Federal financial regulatory agency to conduct capital

stress tests at least annually. The Federal Reserve finalized those

requirements for BHCs with between $10 billion and $50 billion

in assets and state member banks and savings and loan holding

companies with over $10 billion in assets on October 9, 2012.

See 12 CFR part 225, subpart H.

8

Six state member bank subsidiaries of BHCs that participated

in SCAP are also required to conduct stress tests this year under

the Federal Reserve’s “Annual Company-Run Stress Test

Requirements for Banking Organizations with Total Consolidated Assets over $10 Billion Other Than Covered Companies”

(12 CFR part 252, subpart H). Those banks are Bank of New

York Mellon; Fifth Third Bank; Goldman Sachs Bank USA;

Regions Bank; State Street Bank and Trust Company; and SunTrust Bank.

3
market shock that reflects general market stress and

heightened uncertainty, which affects trading positions and elevates counterparty credit risk.

The Dodd-Frank Act codified the Federal Reserve’s

practice of disclosing a summary of the results of its

supervisory stress test. In this paper, the Federal

Reserve is disclosing the results of the 2013 DoddFrank Act supervisory stress tests conducted under

the severely adverse scenario, including firm-specific

results based on the projections made by the Federal

Reserve of each BHC’s revenues, expenses, losses,

and post-stress capital ratios over the planning horizon.9

9 For DFAST 2013, similar to the public disclosure following

CCAR in early 2012, the Federal Reserve is only disclosing

results under the severely adverse scenario for each company. As

the Federal Reserve implements the Dodd-Frank Act stress testing requirements, it intends to evaluate whether public disclosure of the results of the adverse and baseline would assist in

informing the company and market participants about the condition of the banking organization.

Box 1. Dodd-Frank Act Supervisory Stress Tests and

the CCAR Post-Stress Capital Analysis

While closely related, there are some important differences between the Dodd-Frank Act supervisory

stress tests and the CCAR post-stress capital analysis. The projections of pre-tax net income from the

Dodd-Frank Act supervisory stress tests are direct

inputs to the CCAR post-stress capital analysis. The

primary difference between the Dodd-Frank Act

supervisory stress tests and the CCAR post-stress

capital analysis is the capital action assumptions

that are combined with these projections to estimate

post-stress capital levels and ratios.

Capital Action Assumptions for the Dodd-Frank

Act Supervisory Stress Tests

To project post-stress capital ratios for the DoddFrank Act supervisory stress tests, the Federal

Reserve uses a standardized set of capital action

assumptions that are specified in the Dodd-Frank

Act stress test rules.1 Common stock dividend payments are assumed to continue at the same level as

the previous year. Scheduled dividend, interest, or

principal payments on any other capital instrument

eligible for inclusion in the numerator of a regulatory

capital ratio are assumed to be paid. The assumptions are that repurchases of common stock are

zero. The capital action assumptions do not include

issuance of new common stock, preferred stock, or

other instrument that would be included in regulatory

capital, except for common stock issuance associated with expensed employee compensation.2

Capital Actions for CCAR

In contrast, for the CCAR post-stress capital analysis, the Federal Reserve uses BHCs’ planned capital actions, and assesses whether a BHC would be

capable of meeting supervisory expectations for

minimum capital ratios even if stressful conditions

emerged and the BHC did not reduce planned capital distributions.

As a result, post-stress capital ratios projected for

the Dodd-Frank Act supervisory stress tests should

be expected to differ significantly from those for the

CCAR post-stress capital analysis. For example, if a

BHC includes a dividend cut in its planned capital

actions, its post-stress capital ratios projected for the

CCAR capital analysis could be higher than those

projected for the Dodd-Frank Act supervisory stress

tests. Conversely, if a BHC includes significant dividend increases, repurchases, or other actions that

deplete capital in its planned capital actions, the

post-stress capital ratios for the CCAR could be

lower.

1

In order to make the results of its supervisory stress test comparable to the company-run stress tests, the Federal Reserve uses

the same capital action assumptions as those required for the

company-run stress tests, outlined in the Dodd-Frank stress test

rules. See 12 CFR 252.146(b)(2).

2 The Dodd-Frank Act stress test rule for covered companies

assumes that future capital actions that are subject to future

adjustment, market conditions, or other regulatory approvals will

not be reflected in a company’s projected regulatory capital for

the purpose of the company-run stress tests because of the

uncertainty of these actions. Accordingly, under the rule, a company must assume in the second through ninth quarters of the

planning horizon no redemption or repurchase of any capital

instrument eligible for inclusion in the numerator of a regulatory

capital ratio. See 12 CFR 252.146(b)(2)(iii). The Federal

Reserve clarified in subsequent guidance that, for similar reasons, a company should assume that it will not issue any new

common stock, preferred stock, or other instrument that would

be included in regulatory capital in the second through ninth

quarters of the planning horizon, except for common stock issuances associated with expensed employee compensation.

34 444

4 DFAST 2013: Methodology and Results
Company-Run Stress Tests

As required by the Dodd-Frank Act, the Federal

Reserve’s stress test rules require covered companies

to conduct two company-run stress tests each year. In

conducting the “annual” test, a covered company

uses data as of September 30 and reports its stress

test results to the Federal Reserve by January 5. In

addition, a covered company must conduct a “midcycle” test and report the results to the Federal

Reserve by July 5. The Dodd-Frank Act stress test

rules align the timing of annual company-run stress

tests with the annual supervisory stress tests of covered companies.

In their annual stress tests, covered companies subject

to the Dodd-Frank Act stress test rules must use the

scenarios provided by the Federal Reserve. Each year,

the Federal Reserve will provide at least three scenarios—baseline, adverse, and severely adverse—that

are identical to the scenarios the Federal Reserve uses

in the annual supervisory stress tests of covered companies.10 By providing a common set of scenarios to

all firms, the results of company-run and supervisory

stress tests for all 18 BHCs will be based on comparable underlying assumptions. To further enhance

comparability, the supervisory stress tests and

company-run stress tests conducted under the DoddFrank stress test rules use the same set of capital

action assumptions. According to these assumptions,

over the nine-quarter planning horizon, each BHC

maintains its common stock dividend payments at

the same level as the previous year; scheduled dividend, interest or principal payments on any other

capital instrument eligible for inclusion in the

numerator of a regulatory capital ratio are assumed

to be paid; but repurchases of such capital instruments and issuance of stock is assumed to be zero.

Finally, each covered company must publicly disclose

a summary of the results of its company-run stress

test under the severely adverse scenario provided by

the Federal Reserve.

10 Under the stress test rules, the Federal Reserve will provide the

scenarios to companies no later than November 15 each year.

See 12 CFR 252.144(b)(1); 12 CFR 252.154(b)(1).

March 2013 5

Severely Adverse Scenario

On November 15, 2012, the Federal Reserve released

three supervisory stress test scenarios: baseline,

adverse, and severely adverse.11 This section describes

the severely adverse scenario that is the basis for the

projections contained in this report.

It is important to note that the severely adverse scenario is not a forecast, but rather a hypothetical scenario designed to assess the strength of banking organizations and their resilience to an adverse economic

environment. The severely adverse scenario represents

an outcome in which the U.S. economy experiences a

significant recession and financial market stress, and

economic activity in other major economies also contracts significantly.

The severely adverse scenario includes trajectories for

26 variables. These include 14 variables that capture

economic activity, asset prices, and interest rates in

the U.S. economy and financial markets and three

variables (real GDP growth, inflation, and the U.S./

foreign currency exchange rate) in each of four countries or country blocks (the euro area, the United

Kingdom, developing Asia, and Japan).

Figures 2 through 6 illustrate the hypothetical trajectories for some of the key variables describing U.S.

economic activity and asset prices as well as global

economic growth under the severely adverse scenario.

As the figures show, real GDP declines nearly 5 percent between the third quarter of 2012 and the end of

2013; over this period, the unemployment rate rises

to 12 percent, and the four-quarter percent change in

the consumer price index (CPI) decelerates to 1 percent. Equity prices fall more than 50 percent over the

course of the recession and, correspondingly, the

equity market volatility index jumps from about 21 in

the third quarter of 2012 to more than 70 at the start

of the scenario. House prices decline more than

20 percent by the end of 2014, and commercial real

estate prices fall by a similar amount. The international component of the severely adverse scenario

11 See Board of Governors of the Federal Reserve System (2012),

“2013 Supervisory Scenarios for Annual Stress Tests Required

under the Dodd-Frank Act Stress Testing Rules and the Capital

Plan Rule” (Washington: Board of Governors, November 15),

www.federalreserve.gov/newsevents/press/bcreg/20121115a.htm

for additional information and for the details of the supervisory

baseline and supervisory adverse scenarios.

Figure 2. Real GDP growth rate in the severely adverse

scenario, Q1 2009–Q4 2015

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q3 2014Q1 2015Q3 2015

Percent Percent 

Q/Q seasonally adjusted growth rates annualized

Source: Bureau of Economic Analysis and Federal Reserve assumptions in the

severely adverse scenario.

Figure 3. Unemployment rate in the severely adverse

scenario, Q1 2009–Q4 2015

6.0

9.0

12.0

15.0

6.0

9.0

12.0

15.0

Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q3 2014Q1 2015Q3 2015

Percent Percent 

Source: Bureau of Labor Statistics and Federal Reserve assumptions in the

severely adverse scenario.

7
features recessions in the euro area, the United Kingdom, and Japan and below-trend growth in developing Asia.

The severely adverse scenario is similar in severity to

the 2012 CCAR supervisory stress scenario.12 The

main qualitative difference between this year’s

severely adverse scenario and last year’s supervisory

stress scenario is a much more substantial slowdown

in developing Asia.

On November 19, 2012, the Federal Reserve provided

six BHCs with large trading, private equity, and

counterparty exposures from derivatives and financing transactions with a global market shock to

include in their severely adverse scenario.13 The

global market shock is a set of one-time, hypothetical

shocks to a broad range of risk factors. Generally,

these shocks involve large and sudden changes in

asset prices, rates, and spreads, reflecting general

market stress and heightened uncertainty.14

The global market shock is generally based on the

price and rate movements that occurred in the second

half of 2008, a period that featured severe market

stress and the failure of a major, globally active

financial institution. In addition, this global market

shock incorporates hypothetical euro-zone-based

shocks, including sharp increases in certain government yields, widening corporate spreads and sovereign credit default swap (CDS) spreads, and large

depreciation of the euro against major currencies.

Although these shocks are felt across the euro zone in

the scenario, the severity of the shocks varies across

countries within the euro zone, with more pronounced effects experienced by periphery countries.

12 The Federal Reserve CCAR 2012 macroeconomic scenarios

were included in the “Federal Reserve System Comprehensive

Capital Analysis and Review: Summary Instructions and Guidance,” published November 22, 2011; see www.federalreserve

.gov/newsevents/press/bcreg/20111122a.htm.

13 See 12 CFR 252.144(b)(2)(i).

14 See Board of Governors of the Federal Reserve System (2013),

“Federal Reserve Board Announces Release Dates for Results

from Supervisory Stress Tests and from the Comprehensive

Capital Analysis and Review (CCAR),” press release (Washington: Board of Governors, January 28), www.federalreserve.gov/

newsevents/press/bcreg/20130128a.htm.

Figure 4. Dow Jones Stock Market Index, end of quarter in

the severely adverse scenario, Q1 2009–Q4 2015

5000.0

7500.0

10000.0

12500.0

15000.0

17500.0

5000.0

7500.0

10000.0

12500.0

15000.0

17500.0

Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q3 2014Q1 2015Q3 2015

Source: Dow Jones and Federal Reserve assumptions in the severely adverse

scenario.

Figure 5. National House Price Index in the severely

adverse scenario, Q1 2009–Q4 2015

100.0

110.0

120.0

130.0

140.0

150.0

160.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q3 2014Q1 2015Q3 2015

Source: CoreLogic (seasonally adjusted by Federal Reserve) and Federal Reserve

assumptions in the severely adverse scenario.

Figure 6. Real GDP growth in four country/country block

areas in the severely adverse scenario, Q1 2009–Q4 2015

20-

-15

-10

-5

0

5

10

15

20

20-

-15

-10

-5

0

5

10

15

20

Q1 2009Q3 2009Q1 2010Q3 2010Q1 2011Q3 2011Q1 2012Q3 2012Q1 2013Q3 2013Q1 2014Q3 2014Q1 2015Q3 2015

Euro area real GDP growth

Japan real GDP growth 

U.K. real GDP growth

Developing Asia real GDP growth

Percent Percent 

Q/Q seasonally adjusted growth rates annualized

Source: Federal Reserve calculations based on official sector sources and Federal

Reserve assumptions in the severely adverse scenario. Q3 2012 data based on

Federal Reserve calculations using available data as of November 13, 2012.

8 DFAST 2013: Methodology and Results
Federal Reserve Supervisory Stress Test

Framework and Model Methodology

Analytical Framework

The effect of the severely adverse scenario on the

regulatory capital ratios of the 18 BHCs is estimated

by projecting the net income for each BHC over a

nine-quarter planning horizon ending in the fourth

quarter of 2014. Projected net income is combined

with the capital action assumptions prescribed in the

Federal Reserve’s Dodd-Frank Act stress test rules to

project changes in equity capital, which in turn determine changes in regulatory capital measures. This

approach is consistent with U.S. generally accepted

accounting principles (GAAP) and regulatory capital

rules, and provides a perspective on the capital of the

BHCs and on the primary determinants of the projected changes in capital over time: earnings and

capital actions.

Projected net income for the 18 BHCs is generated

from individual projections of revenue, expenses, and

various types of losses and provisions that flow into

pre-tax net income, including loan losses and changes

in the allowance for loan and lease losses (ALLL);

losses on investment securities; losses generated by

operational-risk events; expenses related to the disposition of foreclosed properties; expenses related to

demands by mortgage investors to repurchase loans

deemed to have breached representations and warranties or related to litigation (“mortgage repurchase/

put-back losses”); and, for BHCs with large trading

operations, losses on trading and counterparty positions resulting from the global market shock.

Projected pre-tax net income, in turn, flows into a

calculation of regulatory capital measures that

accounts for taxes and deductions that limit the recognition of certain intangible assets and impose

other restrictions, as specified in current U.S. regulatory capital guidelines.15 Figure 7 illustrates the

framework used to calculate changes in net income

and regulatory capital.

The framework begins with a projection of PPNR,

which equals projected net interest income plus noninterest income minus non-interest expense. Consistent with U.S. GAAP, the PPNR projection incorporates projected losses generated by operational-risk

events such as fraud, computer system or other operating disruptions, or employee lawsuits; mortgage

repurchase losses; and expenses related to the disposition of foreclosed properties (other real estate

owned (OREO) expenses).

The PPNR projection flows into the projection of

pre-tax net income, which equals the PPNR projection, plus other revenue, minus provisions to the

ALLL, losses on securities, and losses on trading and

counterparty positions from the global market shock

(for the six BHCs with large trading operations), and

losses on loans held for sale and measured under the

fair-value option. Net income projections also incorporate extraordinary items, goodwill impairment,

15 See generally 12 CFR part 225, appendix A.

Figure 7. Projecting net income and regulatory capital

Net interest income + non-interest income - non-interest expense

= pre-provision net revenue (PPNR)

Note: PPNR includes income from mortgage servicing rights and losses from 

operational-risk events, mortgage put-back losses, and OREO expenses

PPNR + other revenue - provisions - AFS/HTM securities losses - 

trading and counterparty losses - other losses (gains)

= pre-tax net income

Note: Change in the allowance for loan and lease losses + net charge-offs

= provisions

Pre-tax net income - taxes + extraordinary items net of taxes

= after-tax net income

After-tax net income - net distributions to common and preferred shareholders

and other net reductions to shareholder’s equity from DFAST assumptions

= change in equity capital

Change in equity capital - deductions from regulatory capital + other additions 

to regulatory capital

= change in regulatory capital

9
income attributable to minority interests, and other

losses under the severely adverse scenario.

Provisions for loan and lease losses equal projected

loan losses for the quarter plus the amount needed

for the ALLL to be at an appropriate level at the end

of the quarter, which is a function of projected future

loan losses. The amount of provisions over and

above loan losses may be negative, representing a

drawdown of the ALLL (an ALLL release, increasing net income), or positive, representing a need to

build the ALLL (an additional provision, decreasing

net income) during the quarter.

Projected loan losses for the quarter are estimated

separately for different categories of loans based on

the type of obligor (e.g., consumer or commercial

and industrial), collateral (e.g., residential real estate,

commercial real estate), loan structure (e.g., revolving

credit lines), and accounting treatment (accrual or

fair value). These categories generally follow the

major regulatory report classifications, though some

loss projections are made for more granular loan categories than those included on BHC regulatory

reports.16

These loss projections follow U.S. GAAP and regulatory guidelines and thus incorporate any differences

in the way these guidelines recognize income and

losses based upon where assets are held on the BHCs’

balance sheets. As a result, losses projected for similar or identical assets held in different portfolios can

sometimes differ. For example, losses on loans held in

accrual portfolios equal credit losses due to failure to

pay obligations (cash flow losses resulting in net

charge-offs). For similar loans that are held for sale,

projected losses represent the change in the market

value on the underlying asset under the severely

adverse scenario.

Losses on securities held in the available-for-sale

(AFS) or held-to-maturity (HTM) accounts are projected other-than-temporary impairments (OTTI) for

these positions. Consistent with U.S. GAAP, OTTI

projections incorporate other-than-temporary differences between book value and fair value due to credit

impairment, but not differences reflecting changes in

liquidity or market conditions.

As with the accrual loan portfolio, loss projections

for different categories of securities are made based

on obligor, collateral or underlying cash flow, and

security structure. These categories include various

types of securitized obligations (e.g., commercial and

residential mortgage-backed securities), corporate

bonds, municipal bonds, and sovereign bonds.

For the six BHCs with large trading operations,

losses on trading, private equity positions, and counterparty exposures from derivatives and financing

transactions are projected assuming an instantaneous

re-pricing of positions under a global market shock.

The global market shock presumes a set of severe,

instantaneous changes in market rates, prices, and

volatilities that are in effect layered over the losses

from changes in financial market variables contained

elsewhere in the severely adverse scenario. Losses

related to the global market shock are assumed to

occur in the first quarter of the planning horizon.

These losses include mark-to-market losses on each

of the six BHCs’ trading and private equity positions,

changes in credit valuation adjustments (CVA) for

counterparty exposures, and incremental defaultrelated losses on trading and counterparty exposures

that may result from the global market shock. No

subsequent recoveries on these positions are

assumed, nor are there offsetting changes such as

reductions in compensation or other expenses in

reaction to the global market shock.

The Federal Reserve’s forward-looking projections of

income and losses may include the effects of planned

mergers, acquisitions, or divestitures. The inclusion

of the effects of such planned actions does not—and

is not intended to—express a view on the merits of

such proposals and is not an approval or nonobjection to them.

After-tax net income (or loss) is calculated by applying a consistent tax rate to pre-tax net income (or

loss) for all BHCs; the effect of changing this tax rate

assumption on the post-stress tier 1 common ratio is

discussed in box 2. Along with each BHC’s assumed

capital actions under the Federal Reserve’s DoddFrank Act stress test rules, after-tax net income is the

primary determinant of projected changes in equity

capital, which in turn determines projected changes

in the regulatory capital measures. Capital ratios are

calculated using average total assets and riskweighted assets that are based on projections made

by the BHCs under the severely adverse scenario.

16 See Consolidated Financial Statements for Bank Holding Companies (FR Y-9C).

10 DFAST 2013: Methodology and Results
Modeling Design and

Implementation

The Federal Reserve’s projections of revenue,

expenses, and various types of losses and provisions

that flow into pre-tax net income are based on data

provided by the 18 BHCs participating in DFAST

2013 and on models developed or selected by Federal

Reserve staff and reviewed by an independent group

of Federal Reserve economists and analysts and academics.17 The models are intended to capture how

the revenues, expenses, and losses of each BHC are

affected by the macroeconomic and financial conditions described in the severely adverse scenario and

by characteristics of the BHCs’ loans and securities

portfolios; trading, private equity, and counterparty

exposures from derivatives and financing transactions; business activities; and other relevant factors.18

The FR Y-14 Report

The Federal Reserve collects extensive data on

PPNR, loans, securities, trading and counterparty

risk, and losses related to operational-risk events on

the FR Y-14 report, which includes a set of schedules

collected in monthly, quarterly, or annual frequencies

(FR Y-14M, FR Y-14Q, and FR Y-14A schedules).19

Each of the 18 BHCs submitted FR Y-14M and FR

Y-14Q schedules (as of September 30, 2012) in October and November of 2012 and submitted FR Y-14A

schedules on January 7, 2013. These data, along with

data collected in other regulatory reports and other

17 For more, see Board of Governors of the Federal Reserve

System (2012), “Federal Reserve Announces the Formation of

the Model Validation Council,” press release (Washington:

Board of Governors, April 20), www.federalreserve.gov/

newsevents/press/bcreg/20120420a.htm.

18 In some cases, the loss models estimated the effect of local-level

macroeconomic data, which were projected based on their historical covariance with national variables included in the

severely adverse scenario.

19 The FR Y-14 schedules are available at www.federalreserve.gov/

apps/reportforms/default.aspx.

Box 2. Tier 1 Common Results Not Materially Sensitive to Tax Rates

After-tax net income (or loss) is calculated by applying a consistent tax rate to pre-tax net income (or

loss) for all BHCs. This assumed tax rate is also

used to determine certain aspects of the allowable

deferred tax asset (DTA) included in regulatory

capital.

Changing the tax rate assumption has a limited

effect on minimum projected capital levels. As

shown in figure A, adjusting the assumed tax rate

by 15 percentage points in either direction leads to

only a small change in aggregate tier 1 common

capital at the end of the planning horizon. In addition, the minimum post-stress tier 1 common ratio

changed less than 10 basis points for most BHCs

(figure B). The effect of changing the tax rate

assumption is limited because nearly all BHCs participating in DFAST 2013 are in a cumulative net

loss position over the planning horizon. Net losses

are reduced by the tax rate, but these “tax benefits”

are largely reversed due to restrictions on deferred

Figure A. Ending aggregate tier 1 common levels using tax assets under current regulatory capital rules.

different tax rates

+2%

Billions of dollars 

-2% 

Decrease tax rate 

by 15 pps

Supervisory tax rate Increase tax rate 

by 15 pps

$450

$600

Source: Federal Reserve projections in the severely adverse scenario.

“Pps” is percentage points.

Figure B. Change in minimum tier 1 common ratio

when tax rate is adjusted by 15 pps

0 

4 

11 

2 1 0 2 

8 

5 

3 

Number of BHCs 

Decline

> 25 bps

Decline

10 - 25 bps

Decline

0 - 10 bps

Increase

0 - 10 bps 

Increase

> 10 bps

Decrease tax rate

 by 15 pps

Increase tax rate 

by 15 pps

Source: Federal Reserve projections in the severely adverse scenario.

“Bps” is basis points; “pps” is percentage points.

26 444

March 2013 11
proprietary third-party data, were used in the supervisory models of revenues, expenses, and losses.

Quarterly loan losses are projected using information

collected on the FR Y-14 about the BHCs’ loan portfolios, including borrower characteristics, collateral

characteristics, characteristics of the loans or credit

facilities, amounts outstanding and yet to be drawn

down (for credit lines), payment history, and current

payment status. Loan portfolio data are reported

either at a monthly frequency (for domestic retail

credit card and residential mortgages) or at a quarterly frequency (all other retail and wholesale portfolios). Data are collected on individual loans or credit

facilities for wholesale loan, domestic retail credit

card, and residential mortgage portfolios and are collected on segments of the loan portfolios for other

domestic and international retail portfolios (for

example, segments defined by loan-to-value (LTV)

ratio, geographic location, and borrower credit

score). BHC-projected balances reported on the FR

Y-14 are also used to project loan losses, and where

applicable, incremental loan balances were calculated

based on these projected balances.

Over the past year, several changes have been made

to the FR Y-14 report, which have allowed the Federal Reserve to estimate expected loan losses using

more granular, loan-specific information. For

example, in mid-2012, the Federal Reserve began collecting monthly loan-level data on credit card

accounts and on first- and second-lien mortgages on

the FR Y-14M. The FR Y-14M replaced a quarterly,

segment-level data collection and allows the Federal

Reserve to estimate expected losses on each loan in

the BHC’s portfolio, based on the individual characteristics of the loan.

Losses on securities held in the AFS and HTM portfolios are estimated using securities data collected

quarterly at the individual security (CUSIP) level,

including the amortized cost, market value, and any

OTTI taken on the security to date.

BHCs were required to submit detailed loan and

securities information for all material portfolios,

where the portfolio is deemed to be “material” if it

exceeds either 5 percent of tier 1 capital or $5 billion.

The portfolio categories are defined in the FR

Y-14M and Y-14Q instructions. For portfolios falling

below these thresholds, the BHCs had the option to

submit or not submit the detailed data.

Portfolios for which the Federal Reserve did not

receive detailed data were assigned a loss rate equal

to a high percentile of the loss rates projected for

BHCs that did submit data for that category of loan

or security. The Federal Reserve made considerable

efforts to validate BHC-reported data, and requested

multiple resubmissions as needed. However, in certain instances, BHC-reported data were still not sufficient or were deemed unreliable to produce supervisory estimates. In such instances, the BHC received a

loss rate at or near the 90th percentile of the loss

rates projected for the relevant loan type at the BHCs

that did provide reliable data. In some instances

where certain data elements were reported as missing

values, these missing data were assigned conservative

values (e.g., high LTV values or low credit scores)

based on the remainder of the portfolio.20 These

assumptions are intended to reflect a conservative

view of the risk characteristics of the portfolios,

given insufficient information to make more risksensitive projections.

Losses related to the global market shock, including

losses related to derivatives and other counterparty

exposures, are projected using information on trading, financing, and derivatives positions, private

equity holdings, and certain other assets subject to

fair-value accounting held by BHCs with large trading operations. The FR Y-14 schedules collect BHCestimated sensitivities of these positions to the set of

risk factors specified by the Federal Reserve, including changes in a wide range of U.S. and global market rates and asset prices as well as volatilities of

those rates and prices. The specific risk factors are

those judged to be most relevant to the positions held

by the BHCs. The schedules also collect information

on the BHC’s counterparty exposures revalued with

respect to these risk factors, both for segments of

counterparties and for individual large counterparties. These data, which are collected for positions in

the trading and private equity portfolios held by the

BHCs and counterparty exposures, are as of market

close November 14, 2012.

Most components of PPNR are projected using data

on historical revenues and operating and other noncredit-related expenses reported on the FR Y-9C

20 The method of applying conservative assumptions to certain

risk segments was used only in cases in which the data-related

issues were isolated in such a way that the remainder of the

portfolio could be readily modeled using the existing supervisory framework.

12 DFAST 2013: Methodology and Results
report, which contains consolidated income statement and balance sheet information for each BHC,

including components of interest income, noninterest income, and non-interest expenses.21 Separate data are collected on the FR Y-14 about mortgage loans that were sold or securitized and the

BHCs’ historical losses related to operational-risk

events to project losses from mortgage repurchase

and operational-risk events under the severely

adverse scenario.

Finally, changes in regulatory capital ratios over the

planning horizon are calculated using data collected

on the BHCs’ projections of risk-weighted assets and

balance sheet composition.

Loss, Revenue, and Expense Models

The data collected from the BHCs, along with data

collected in other regulatory reports; proprietary

industry data; and the variables defining the severely

adverse scenario, are inputs into a series of models

used to project losses, revenues, and expenses for each

BHC over the planning horizon. These models were

either developed by Federal Reserve analysts and

economists or are third-party models used by Federal

Reserve staff. In some cases, the severely adverse scenario projections of certain types of losses made by

the Federal Reserve use as an input sensitivities generated by the BHCs using their internal riskmeasurement models.

In general, the models were developed using pooled

historical data from many financial institutions,

either supervisory data collected by the Federal

Reserve or proprietary industry data. As a result, the

estimated parameters reflect the typical or industryaverage response to variation in the macroeconomic

and financial market variables and portfolio-specific

and instrument-specific characteristics.

This approach reflects not only the difficulty of estimating separate, statistically robust models for each

of the 18 BHCs, but also the desire not to assume

that historical BHC-specific results will prevail in the

future when those results cannot be explained by

consistently observable variables incorporated into a

robust statistical model. Thus, BHC-specific factors

are incorporated through the detailed portfolio and

business activity data that are inputs to the models,

but the estimated relationships between these variables, the macroeconomic and financial market factors defined in the severely adverse scenario, and revenue or losses are the same for all BHCs. This means

that the severely adverse scenario projections made

by the Federal Reserve will not necessarily match or

mirror similar projections made by individual BHCs,

which will incorporate diverse approaches to capturing the effect of portfolio characteristics and economic factors.

The Federal Reserve deviated from the industry-wide

modeling approach only in a very limited number of

cases where the historical data used to estimate the

model were not sufficiently granular to reliably capture cross-firm differences in loss, expense, or

revenue-generating characteristics. In these cases,

BHC-specific indicator variables (“fixed effects”)

were included in the models.

The models developed internally by the Federal

Reserve draw on economic research and analysis and

industry practice in modeling the impact of borrower, instrument, and collateral characteristics and

macroeconomic factors on revenue, expenses, and

losses. The approaches build on work done by the

Federal Reserve in the SCAP and the CCAR in 2011

and 2012. But in some cases, they represent significant refinement and advancement of that work,

reflecting advances in modeling technique, richer and

more detailed data over which to estimate the models, and longer histories of performance in both

adverse and more benign economic settings. In a few

cases, these efforts resulted in new models that were

implemented in DFAST 2013. These new models and

other models used are described in greater detail in

appendix B. Overall, the Federal Reserve continues to

move toward an overall modeling framework that is

increasingly independent of BHC projections.

The models were reviewed by an independent model

review team comprised of economists and analysts

from across the Federal Reserve System, with a focus

on the design and estimation of the models. Model

reviewers were primarily Federal Reserve subject

matter experts who were not involved in model development and who reported to a different oversight

group than model developers. In addition, Federal

Reserve analysts developed industry-wide loss and

PPNR projections capturing the potential revenue

and losses of the banking industry as a whole in a

stressed macroeconomic environment, for use as reference points in assessing model outputs across the

18 BHCs.

21 The FR Y-9C report is available at www.federalreserve.gov/

apps/reportforms/default.aspx.

March 2013 13

Federal Reserve Supervisory

Stress Test Results

This section describes the Federal Reserve’s severely

adverse scenario projections of losses, revenue,

expenses, and capital positions for the 18 BHCs participating in DFAST 2013. The projections presented

in this section are based on the severely adverse scenario developed by the Federal Reserve.

The results include projections of post-stress capital

ratios for each of the 18 BHCs over the nine-quarter

planning horizon spanning the fourth quarter of

2012 to the end of 2014. These ratios include the

ratio of the common equity component of tier 1

capital to risk-weighted assets (the tier 1 common

ratio), the ratio of tier 1 capital to risk-weighted

assets (the tier 1 capital ratio), the ratio of total regulatory capital to risk-weighted assets (the total riskbased capital ratio), and the ratio of tier 1 capital to

average assets (the tier 1 leverage ratio).22 The results

also include projections of the components of net

income before taxes, including revenues, provisions,

and losses, as well as components of loan losses.

The Federal Reserve’s projections assume the capital

actions prescribed in the Dodd-Frank stress test

rules. According to these assumptions, over the ninequarter planning horizon, each BHC maintains its

common stock dividend payments at the same level

as the previous year; scheduled dividend, interest, or

principal payments on any other capital instrument

eligible for inclusion in the numerator of a regulatory

capital ratio are assumed to be paid; but repurchases

of such capital instruments and issuance of stock is

assumed to be zero. As a result, the Federal Reserve’s

projections do not incorporate any changes in capital

actions that BHCs might undertake in reaction to

stressed financial conditions. The assumed capital

actions also do not incorporate any increases in distributions that BHCs might be planning to make over

the nine-quarter planning horizon.

These results are presented both in the aggregate for

the 18 BHCs and for individual BHCs. The aggregate

results provide a sense of the stringency of the

severely adverse scenario projections and the sensitivity of these BHCs as a group to the stressed economic and financial market conditions contained in

that scenario. The range of results across individual

BHCs reflects differences in business focus, asset

composition, revenue and expense sources, as well as

differences in portfolio risk characteristics. In addition, the post-stress capital ratio projections reflect

differences in capital actions across the BHCs prescribed in the Dodd-Frank stress test final rules. The

comprehensive results for individual BHCs are

reported in appendix C.

Stressed Regulatory Capital Ratios

The projections suggest significant declines in regulatory capital ratios for nearly all the BHCs under the

severely adverse scenario. Overall, the total amount

of tier 1 common capital held by the 18 BHCs is estimated to fall by more than $240 billion, or about 31

percent, from the third quarter of 2012 to the fourth

quarter of 2014 under the severely adverse scenario

and with prescribed capital actions over this period.

As shown in table 1, in the aggregate each of the four

capital ratios decline over the course of the planning

horizon, with year-end 2014 levels ranging from

2.0 percentage points to 3.9 percentage points lower

than at the start of the planning horizon. Table 2

presents these ratios for each of the 18 BHCs.

22 Tier 1 capital, as defined in the Federal Reserve's Risk-Based

Capital Adequacy Guidelines, is composed of common and

non-common equity elements, some of which are subject to limits on their inclusion in tier 1 capital. See 12 CFR part 225,

appendix A, section II.A.1. These elements include common

stockholders' equity, qualifying perpetual preferred stock, certain minority interests, and trust preferred securities. Certain

intangible assets, including goodwill and deferred tax assets, are

deducted from tier 1 capital or are included subject to limits. See

12 CFR part 225, appendix A, section II.B. Total regulatory

capital consists of tier 1 capital plus certain subordinated debt

instruments and the allowance for loan and lease losses, subject

to certain limits.

15
Table 1.A. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes, and loan losses, by type of loan:

18 participating bank holding companies

Federal Reserve estimates in the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 11.1 7.7 7.4

Tier 1 capital ratio (%) 12.9 9.2 9.0

Total risk-based capital ratio (%) 15.7 11.8 11.7

Tier 1 leverage ratio (%) 8.0 6.0 6.0

Note: The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical

estimates that involve an economic outcome that is more adverse than expected. These estimates are not forecasts of expected losses, revenues, net income before taxes, or

capital ratios. The minimum capital ratio presented is for the period Q4 2012 to Q4 2014.

Source: Federal Reserve estimates in the severely adverse scenario.

Table 1.B. Projected losses, revenue, and net income before

taxes through Q4 2014 under the severely adverse

scenario: 18 participating bank holding companies

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue2267.8 2.4

Other revenue3

1.2

less

Provisions 317.2

Realized losses/gains on securities (AFS/HTM) 12.9

Trading and counterparty losses4

97.0

Other losses/gains5

36.0

equals

Net income before taxes -194.1 -1.7

1

Average assets is the nine-quarter average of total assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Source: Federal Reserve estimates in the severely adverse scenario.

Table 1.C. Projected loan losses by type of loans for Q4

2012–Q4 2014 under the severely adverse scenario:

18 participating bank holding companies

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

316.6 7.5

First-lien mortgages, domestic 60.1 6.6

Junior liens and HELOCs, domestic 37.2 9.6

Commercial and industrial 60.5 6.8

Commercial real estate, domestic 32.9 8.0

Credit cards 87.1 16.7

Other consumer 26.8 6.1

Other loans 11.9 1.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

Source: Federal Reserve estimates in the severely adverse scenario.

16 DFAST 2013: Methodology and Results
Table 2. Dodd-Frank Act stress testing 2013

Projected regulatory capital ratios and tier 1 common ratios through Q4 2014 under the severely adverse scenario

Federal Reserve estimates in the severely adverse scenario

Bank holding company

Tier 1 common ratio (%) Tier 1 capital ratio (%) Total risk-based capital ratio (%) Tier 1 leverage ratio (%)

Actual

Q3 2012

Projected

Q4 2014

Projected

mimimum

Actual

Q3 2012

Projected

Q4 2014

Projected

mimimum

Actual

Q3 2012

Projected

Q4 2014

Projected

mimimum

Actual

Q3 2012

Projected

Q4 2014

Projected

mimimum

Ally Financial Inc.1

7.3 1.5 1.5 13.6 11.0 11.0 14.6 12.6 12.6 11.3 9.4 9.4

American Express Company 12.7 11.3 11.1 12.7 11.3 11.1 14.7 13.4 13.2 10.7 9.5 8.9

Bank of America Corporation 11.4 6.9 6.8 13.6 8.5 8.5 17.2 11.6 11.6 7.8 5.4 5.4

The Bank of New York Mellon

Corporation 13.3 15.9 13.2 15.3 17.1 14.8 16.9 17.9 16.0 5.6 5.9 5.1

BB&T Corporation2

9.5 9.4 9.4 10.9 11.2 11.2 14.0 13.4 13.4 7.9 8.3 7.9

Capital One Financial Corporation 10.7 7.4 7.4 12.7 7.8 7.8 15.0 10.1 10.1 9.9 5.7 5.7

Citigroup Inc. 12.7 8.9 8.3 13.9 9.8 9.3 17.1 12.9 12.5 7.4 5.6 5.3

Fifth Third Bancorp 9.7 8.6 8.6 10.8 9.3 9.3 14.8 12.4 12.4 10.1 8.8 8.8

The Goldman Sachs Group, Inc. 13.1 8.2 5.8 15.0 10.8 8.4 18.1 13.8 11.3 7.2 6.2 3.9

JPMorgan Chase & Co. 10.4 6.8 6.3 11.9 7.9 7.4 14.7 10.3 9.9 7.1 4.7 4.7

KeyCorp 11.3 8.0 8.0 12.1 8.6 8.6 15.2 11.2 11.2 11.4 8.1 8.1

Morgan Stanley 13.9 6.4 5.7 16.9 8.2 7.5 17.0 9.4 8.7 7.2 5.1 4.5

The PNC Financial Services

Group, Inc. 9.5 8.7 8.7 11.7 10.8 10.8 14.5 13.4 13.4 10.4 8.7 8.7

Regions Financial Corporation 10.5 7.5 7.5 11.5 8.5 8.5 15.0 11.7 11.7 9.1 6.8 6.8

State Street Corporation 17.8 13.0 12.8 19.8 14.5 14.4 21.3 16.6 16.2 7.6 7.1 6.6

SunTrust Banks, Inc. 9.8 7.3 7.3 10.6 8.2 8.2 13.0 10.4 10.4 8.5 6.5 6.5

U.S. Bancorp 9.0 8.3 8.3 10.9 10.3 10.3 13.3 12.3 12.3 9.2 8.7 8.7

Wells Fargo & Company 9.9 7.0 7.0 11.5 8.7 8.7 14.5 11.4 11.2 9.4 7.0 7.0

18 participating bank holding

companies 11.1 7.7 7.4 12.9 9.2 9.0 15.7 11.8 11.7 8.0 6.0 6.0

Note: The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical

estimates that involve an economic outcome that is more adverse than expected. These estimates are not forecasts of capital ratios. The minimum stressed ratios (%) are the

lowest quarterly ratios from Q4 2012 to Q4 2014 under the severely adverse scenario.

1

The post-stress capital ratios presented in the table are based on an assumption that Ally remains subject to contingent liabilities associated with Residential Capital, LLC

(“ResCap”). On May 14, 2012, ResCap and certain of its subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

Southern District of New York. As of March 6, 2013, the outcome of the ResCap bankruptcy remained pending.

2

The actual and post-stress capital ratios presented in the table are based on information that BB&T provided to the Federal Reserve in regulatory reports on or before

February 6, 2013. The information that BB&T provided to the Federal Reserve includes information regarding BB&T’s risk-weighted assets. On March 4, 2013, BB&T

disclosed publicly that it had reevaluated its process related to calculating risk-weighted assets and determined that certain adjustments, primarily related to the

presentation of certain unfunded lending commitments, were required in order to conform to regulatory guidance. These adjustments resulted in an increase to

risk-weighted assets and a decrease in BB&T’s risk-based capital ratios and are not reflected in this table.

Source: Federal Reserve estimates in the severely adverse scenario. Stressed ratios with Dodd-Frank Act capital action assumptions through Q4 2014.

Table 3 shows estimates of the minimum tier 1 common ratio during the severely adverse scenario for

each of the 18 BHCs with all prescribed capital

actions through the fourth quarter of 2014.

The changes in post-stress regulatory capital ratios

vary considerably across BHCs (see figures 8 and 9

and table 2). Overall, post-stress regulatory capital

ratios decline from the beginning to the end of the

planning horizon for all but two of the BHCs. The

post-stress capital ratios incorporate projected levels

of total average assets and risk-weighted assets over

the planning horizon, based on projections provided

by the BHCs in their FR Y-14 submissions. Because

the Federal Reserve’s projections of losses and

PPNR also reflect the projected growth or reduction

of risk-weighted assets and total assets for each

BHC, projected changes in risk-weighted assets and

total assets do not always have a straightforward

effect on projected stressed capital ratios.

Projected Losses

The Federal Reserve’s severely adverse scenario projections suggest that the 18 BHCs as a group would

experience significant losses under the severely

adverse scenario. In this scenario, losses are projected

to be $462 billion for the 18 BHCs in the aggregate

over the nine quarters of the planning horizon. These

March 2013 17
losses include $317 billion in accrual loan portfolio

losses, $13 billion in OTTI and other realized securities losses, $97 billion in trading and counterparty

losses at the six BHCs with large trading portfolios,

and $36 billion in additional losses from items such

as loans measured under the fair-value option (losses

on these loans were calculated based on the global

market shock, consistent with the treatment of fair

valued positions in the trading portfolio), and goodwill impairment charges. Table 1 presents these

results in the aggregate, while table 4 presents them

individually for each of the 18 BHCs.

The biggest sources of loss are losses on the accrual

loan portfolios and trading and counterparty losses

from the global market shock. Together, these two

account for nearly 90 percent of the projected losses

for the 18 BHCs under the severely adverse scenario

(figure 10).

Loan Losses

Projected losses on consumer-related lending—domestic residential mortgages, credit cards, and other

consumer loans—represent 67 percent of projected

loan losses and 46 percent of total projected losses

for the 18 BHCs (see figure 10 and table 1). This is

consistent with both the share of these types of loans

in the BHCs’ loan portfolios—these loans represent

54 percent of the accrual loan portfolio at these firms

as of the third quarter of 2012—and with the

severely adverse scenario, which features very high

unemployment rates and significant further declines

in housing prices. Losses on domestic residential

mortgage loans, including both first liens and junior

liens/home equity, is the single largest category of

losses, at $97 billion, representing 31 percent of total

projected loan losses. Projected losses on credit card

lending—at $87 billion—is the second largest catTable 3. Dodd-Frank Act stress testing 2013

Minimum stressed tier 1 common ratios, Q4 2012 to Q4 2014

Federal Reserve estimates in the severely adverse scenario

Bank holding company Stressed ratios with DFA stress testing

capital action assumptions

Ally Financial Inc.1

1.5

American Express Company 11.1

Bank of America Corporation 6.8

The Bank of New York Mellon Corporation 13.2

BB&T Corporation2

9.4

Capital One Financial Corporation 7.4

Citigroup Inc. 8.3

Fifth Third Bancorp 8.6

The Goldman Sachs Group, Inc. 5.8

JPMorgan Chase & Co. 6.3

KeyCorp 8.0

Morgan Stanley 5.7

The PNC Financial Services Group, Inc. 8.7

Regions Financial Corporation 7.5

State Street Corporation 12.8

SunTrust Banks, Inc. 7.3

U.S. Bancorp 8.3

Wells Fargo & Co. 7.0

Note: The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical

estimates that involve an economic outcome that is more adverse than expected.

1

The post-stress capital ratios presented in the table are based on an assumption that Ally remains subject to contingent liabilities associated with Residential Capital, LLC

(“ResCap”). On May 14, 2012, ResCap and certain of its subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

Southern District of New York. As of March 6, 2013, the outcome of the ResCap bankruptcy remained pending.

2

The actual and post-stress capital ratios presented in the table are based on information that BB&T provided to the Federal Reserve in regulatory reports on or before

February 6, 2013. The information that BB&T provided to the Federal Reserve includes information regarding BB&T’s risk-weighted assets. On March 4, 2013, BB&T

disclosed publicly that it had reevaluated its process related to calculating risk-weighted assets and determined that certain adjustments, primarily related to the

presentation of certain unfunded lending commitments, were required in order to conform to regulatory guidance. These adjustments resulted in an increase to

risk-weighted assets and a decrease in BB&T’s risk-based capital ratios and are not reflected in this table.

Source: Federal Reserve estimates in the severely adverse scenario.

18 DFAST 2013: Methodology and Results
egory, representing 28 percent. The next largest category is projected losses on commercial and industrial loans, at $61 billion.

For the 18 BHCs as a group, the nine-quarter cumulative loss rate on the accrual loan portfolio is

7.5 percent, where the loss rate is calculated as total

projected loan losses over the nine quarters of the

planning horizon divided by average loan balances

over the horizon. This rate is very high by historical

standards, more severe than any U.S. recession since

the 1930s. As illustrated in figure 11, total loan loss

rates vary significantly across BHCs, ranging

between 2.0 percent and 13.2 percent across these

institutions.

The differences in total loan loss rates across the

BHCs reflect differences in loan portfolio composition and differences in risk characteristics for each

type of lending across these firms. Loan portfolio

composition matters because projected loss rates vary

significantly by loan type.23 In the aggregate, ninequarter cumulative loss rates range between 1.8 percent on other loans and 16.7 percent on credit cards,

reflecting both differences in typical performance of

these loans—some loan types tend to generate higher

losses, though generally also higher revenue—and differences in the sensitivity of lending to the severely

adverse scenario. In particular, lending categories

whose performance is sensitive to unemployment

rates or housing prices may experience high stressed

loss rates due to the considerable stress on these factors in the severely adverse scenario.

23 The loan categories are defined to be generally consistent with

categories on the FR Y-9 C reports.

Figure 8. Minimum tier 1 common ratio in the severely adverse scenario

0.0

3.0

6.0

9.0

12.0

15.0

0.0

3.0

6.0

9.0

12.0

15.0

Ally 

1

AmEx

BofA

BNYM

BB&T 

2

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Percent Percent 

Median = 7.7% 

1. The post-stress capital ratios presented in the figure are based on an assumption that Ally remains subject to contingent liabilities associated with Residential Capital, LLC

(“ResCap”). On May 14, 2012, ResCap and certain of its subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

Southern District of New York. As of March 6, 2013, the outcome of the ResCap bankruptcy remained pending.

2. The actual and post-stress capital ratios presented in the figure are based on information that BB&T provided to the Federal Reserve in regulatory reports on or before February 6, 2013. The information that BB&T provided to the Federal Reserve includes information regarding BB&T’s risk-weighted assets. On March 4, 2013, BB&T disclosed publicly

that it had reevaluated its process related to calculating risk-weighted assets and determined that certain adjustments, primarily related to the presentation of certain unfunded

lending commitments, were required in order to conform to regulatory guidance. These adjustments resulted in an increase to risk-weighted assets and a decrease in BB&T’s

risk-based capital ratios and are not reflected in this figure.

Source: Federal Reserve estimates in the severely adverse scenario.

March 2013 19
Figures 12 through 18 present the nine-quarter

cumulative loss rates on seven different categories of

loans for each of the 18 BHCs. There are significant

differences across BHCs in projected loan loss rates

for similar types of loans. For example, while the

median projected loss rate on domestic first-lien residential mortgages is 6.0 percent, the rates among

BHCs with first lien mortgage portfolios vary from a

low of 0.6 percent to a high of 10.3 percent. Similarly, for commercial and industrial loans, the range

of projected loss rates is from 3.5 percent to 49.8 percent, with a median of 6.5 percent. Projected loss

rates on most loan categories show similar dispersion

across BHCs.24

Differences in projected loss rates across BHCs primarily reflect differences in loan characteristics, such

as loan-to-value ratio or debt service coverage ratio,

and borrower characteristics, such as credit rating or

FICO score. In addition, some BHCs have taken

write-downs on portfolios of impaired loans either

purchased or acquired through mergers. Losses on

these loans are projected using the same loss models

used for loans of the same type, and the resulting loss

projections are reduced by the amount of such writedowns. For these BHCs, projected loss rates will be

lower than for BHCs that hold similar loans not subject to purchase-related write-downs.

Losses on Trading, Private Equity, and

Derivatives Positions

The severely adverse scenario results include $97 billion in trading and counterparty credit losses from

the global market shock at the six BHCs with large

24 Losses are calculated based on the exposure at default, which

includes both outstanding balances and any additional drawdown of the credit line that occurs prior to default, while loss

rates are calculated as a percent of outstanding balances. See

appendix B for more detail on the models used to project net

income and stressed capital.

Figure 9. Change from Q3 2012 to minimum tier 1 common ratio in the severely adverse scenario

0.0

3.0

6.0

9.0

12.0

15.0

18.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0 Change from Q3 2012

to minimum 

Minimum ratio

Percent Percent AmEx BofA BNYM CapOne Citi Fifth Third Goldman JPMC KeyCorp Morgan Stanley PNC Regions State St SunTrust USB Ally Wells

1

BB&T 

2

1. The post-stress capital ratios presented in the figure are based on an assumption that Ally remains subject to contingent liabilities associated with Residential Capital, LLC

(“ResCap”). On May 14, 2012, ResCap and certain of its subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

Southern District of New York. As of March 6, 2013, the outcome of the ResCap bankruptcy remained pending.

2. The actual and post-stress capital ratios presented in the figure are based on information that BB&T provided to the Federal Reserve in regulatory reports on or before February 6, 2013. The information that BB&T provided to the Federal Reserve includes information regarding BB&T’s risk-weighted assets. On March 4, 2013, BB&T disclosed publicly

that it had reevaluated its process related to calculating risk-weighted assets and determined that certain adjustments, primarily related to the presentation of certain unfunded

lending commitments, were required in order to conform to regulatory guidance. These adjustments resulted in an increase to risk-weighted assets and a decrease in BB&T’s

risk-based capital ratios and are not reflected in this figure.

Source: Federal Reserve estimates in the severely adverse scenario.

20 DFAST 2013: Methodology and Results
trading, private equity, and counterparty exposures

from derivatives and financing transactions. Trading

and counterparty credit losses range between $7 billion and $25 billion across the six BHCs (see table 4),

with the largest losses at those BHCs with the most

significant trading activities. Even so, the relative size

of losses across firms depends not on nominal portfolio size, but rather on the specific risk characteristics of each BHC’s trading positions, inclusive of

hedges. Importantly, projected losses related to the

global market shock are based on the trading positions held by these firms on a single date (November 14, 2012) and could have differed, perhaps significantly over the nine-quarter planning horizon, based

on trading positions from a different date.

Table 4. Dodd-Frank Act stress testing 2013

Projected losses, revenues, and net income before taxes for 18 participating bank holding companies

Federal Reserve estimates in the severely adverse scenario

Billions of dollars

Bank holding company

Sum of revenues Minus sum of provisions and losses Equals

Pre-provision

net revenue1 Other revenue2

Provisions

Realized

losses/gains

on securities

(AFS/HTM)

Trading and

counterparty

losses3

Other

losses/gains4

Net income

before taxes

Ally Financial Inc. -3.7 0.3 5.1 0.7 0.0 0.0 -9.3

American Express Company 15.4 0.0 14.2 0.0 0.0 0.4 0.8

Bank of America Corporation 24.1 1.0 49.7 0.5 14.1 12.5 -51.8

The Bank of New York Mellon Corporation 6.8 0.0 1.1 0.2 0.0 0.0 5.5

BB&T Corporation 7.1 0.0 6.4 0.1 0.0 0.1 0.6

Capital One Financial Corporation 18.7 0.0 26.4 0.3 0.0 0.0 -8.0

Citigroup Inc. 44.0 0.0 49.4 4.4 15.9 2.7 -28.6

Fifth Third Bancorp 4.9 0.0 5.1 0.1 0.0 0.0 -0.3

The Goldman Sachs Group, Inc. 14.4 0.0 2.6 0.2 24.9 7.1 -20.5

JPMorgan Chase & Co. 45.0 0.0 51.3 0.9 23.5 1.6 -32.3

KeyCorp 2.5 0.0 4.3 0.0 0.0 0.6 -2.4

Morgan Stanley 1.2 0.0 2.3 0.0 11.7 6.7 -19.4

The PNC Financial Services Group, Inc. 9.8 -0.1 9.8 0.8 0.0 0.4 -1.4

Regions Financial Corporation 3.1 0.0 5.2 0.1 0.0 0.0 -2.2

State Street Corporation 3.0 0.0 0.4 0.4 0.0 0.7 1.5

SunTrust Banks, Inc. 4.6 0.0 7.9 0.0 0.0 0.7 -4.1

U.S. Bancorp 21.2 0.1 17.2 0.2 0.0 0.3 3.6

Wells Fargo & Company 45.9 0.0 58.8 3.9 6.9 2.0 -25.7

18 participating bank holding companies 267.8 1.2 317.2 12.9 97.0 36.0 -194.1

Note: These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are not forecasts of expected

losses, revenues, or net income before taxes.

Average balances used for profitability ratios and portfolio loss rates are averages over the nine-quarter period. Estimates may not sum precisely due to rounding.

1

Pre-provision net revenue includes losses from operational-risk events, mortgage put-back expenses, and OREO costs.

2

Other revenue includes one-time income and (expense) items not included in pre-provision net revenue.

3

Trading and counterparty losses includes mark-to-market losses, changes in credit valuation adjustments, and incremental default losses.

4

Other losses/gains includes projected change in fair value of loans held for sale and loans held for investment measured under the fair-value option, and goodwill impairment

losses.

Figure 10. Projected losses in the severely adverse

scenario

First-lien mortgages, 

domestic, 60

Trading and 

counterparty

losses, 97

Credit cards, 87

Commercial and 

industrial loans, 60

Securities 

losses 

Junior liens 

and HELOCs, 

domestic, 37

Commercial 

real estate, 

domestic, 33

Other 

consumer 

loans, 27

Other 

loans, 12

Other 

losses, 36

Billions of dollars

(AFS/HTM), 13

Source: Federal Reserve estimates in the severely adverse scenario.

March 2013 21
Projected Pre-Provision Net Revenue and

Net Income

In the aggregate, the 18 BHCs are projected to generate $268 billion in PPNR cumulatively over the nine

quarters of the planning horizon, equal to 2.4 percent of average assets for these firms (see table 1).

Relatively low PPNR projections reflect low levels of

net interest income because of the effect of low interest rates and further flattening of the yield curve in

the early part of the severely adverse scenario, given

the BHCs’ current and projected balance sheet composition. The results also reflect low levels of noninterest income, consistent with the falling asset

prices and sharply contracting economic activity in

the severely adverse scenario. In addition, the PPNR

projections incorporate elevated levels of losses from

operational-risk events such as fraud, employee lawsuits, or computer system or other operating disruptions and expenses related to put-backs of mortgages, netted against reserves already taken by the

BHCs.25

The ratio of projected cumulative PPNR to average

assets varies across BHCs (see figure 19 and table 4).

A significant portion of this variation reflects differences in business focus across the institutions. For

instance, the ratio of PPNR to assets tends to be

higher at BHCs focusing on credit card lending,

reflecting the higher net interest income that credit

cards generally produce relative to other forms of

lending.26 Lower PPNR rates do not necessarily

imply lower net income, however, since the same business focus and revenue risk characteristics determining differences in PPNR across firms could also

result in offsetting differences in projected losses.

Projected PPNR and losses are the primary determinants of projected net income. Table 1 presents

aggregate projections of the components of pre-tax

net income, including provisions into the ALLL and

one-time income and expense and extraordinary

items, under the severely adverse scenario. Table 4

presents these projections for each of the 18 BHCs.

The projections are cumulative for the nine quarters

of the planning horizon.

25 These estimates are conditional on the hypothetical severely

adverse scenario and on conservative assumptions. They are not

a supervisory estimate of the current legal liability that BHCs

might actually face.

26 As noted, credit card lending also tends to generate relatively

high loss rates, so the higher PPNR rates at these BHCs do not

necessarily indicate higher profitability.

Figure 11. Total loan loss rates in the severely adverse scenario

0.0

3.0

6.0

9.0

12.0

0.0

3.0

6.0

9.0

12.0

Percent Percent 

Median = 6.6% 

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

22 DFAST 2013: Methodology and Results
Of note, following U.S. GAAP, the net income projections incorporate loan losses indirectly through

provisions, which equal projected loan losses plus the

amount needed for the ALLL to be at an appropriate

level at the end of each quarter. The slightly more

than $317 billion in total provisions reported in

table 1 is the result of slightly less than $317 billion in

net charge-offs and almost no net change in the

ALLL over the nine-quarter planning horizon.

Table 1 is cumulative over the planning horizon, and

masks variation in the ALLL during the course of

the nine quarters. Specifically, the projected ALLL

Table 5. Dodd-Frank Act stress testing 2013

Projected loan losses, by type of loan, for 18 participating bank holding companies

Federal Reserve estimates in the severely adverse scenario

Bank holding company Loan

losses1

First-lien

mortgages,

domestic

Junior liens

and HELOCs,

domestic

Commercial

and industrial

Commercial

real estate,

domestic

Credit

cards

Other

consumer

Other

loans

Portfolio loan losses, by type of loan, for Q4 2012–Q4 2014 under the severely adverse scenario (billions of dollars)

Ally Financial Inc. 4.5 0.3 0.2 1.4 0.1 0.0 2.4 0.0

American Express Company 10.7 0.0 0.0 2.6 0.0 8.0 0.0 0.0

Bank of America Corporation 57.5 15.3 9.4 8.5 4.7 15.3 3.0 1.3

The Bank of New York Mellon Corporation 1.2 0.4 0.0 0.1 0.1 0.0 0.0 0.5

BB&T Corporation 5.9 0.9 0.4 1.1 2.1 0.3 0.9 0.3

Capital One Financial Corporation 23.6 1.4 0.5 1.5 0.9 16.4 2.7 0.1

Citigroup Inc. 54.6 8.8 4.5 7.8 0.8 23.3 6.5 2.9

Fifth Third Bancorp 5.3 0.7 0.9 1.9 0.8 0.4 0.5 0.2

The Goldman Sachs Group, Inc. 2.0 0.0 0.0 1.4 0.1 0.0 0.0 0.6

JPMorgan Chase & Co. 53.9 11.3 6.7 11.1 5.2 14.8 2.3 2.6

KeyCorp 3.9 0.4 1.1 1.0 0.6 0.1 0.4 0.3

Morgan Stanley 1.6 0.1 0.0 1.2 0.0 0.0 0.1 0.1

The PNC Financial Services Group, Inc. 10.0 1.4 1.6 3.4 2.0 0.6 0.7 0.3

Regions Financial Corporation 5.4 1.1 0.8 1.2 1.7 0.2 0.3 0.2

State Street Corporation 0.3 0.0 0.0 0.0 0.1 0.0 0.0 0.2

SunTrust Banks, Inc. 7.4 1.7 1.7 2.1 1.1 0.1 0.5 0.2

U.S. Bancorp 15.1 1.3 1.0 4.3 3.0 3.2 1.6 0.7

Wells Fargo & Company 53.8 15.3 8.4 9.9 9.6 4.4 5.0 1.2

18 participating bank holding companies 316.6 60.1 37.2 60.5 32.9 87.1 26.8 11.9

Portfolio loss rates, by type of loan, for Q4 2012–Q4 2014 under the severely adverse scenario (percent of average balances)

Ally Financial Inc. 5.2 6.0 9.3 5.2 6.5 0.0 4.9 1.8

American Express Company 11.2 0.0 0.0 9.4 0.0 12.0 0.0 4.5

Bank of America Corporation 6.9 5.9 10.0 5.1 8.6 16.2 4.3 1.3

The Bank of New York Mellon Corporation 2.7 6.7 12.8 3.5 7.7 0.0 0.5 1.7

BB&T Corporation 5.5 2.8 6.1 7.2 7.1 16.6 7.0 3.0

Capital One Financial Corporation 13.2 3.8 21.1 8.9 4.8 22.2 11.8 1.8

Citigroup Inc. 9.2 9.4 13.4 6.0 11.3 17.9 16.5 1.8

Fifth Third Bancorp 6.3 5.4 10.4 6.3 7.7 21.6 3.6 2.4

The Goldman Sachs Group, Inc. 5.2 7.7 9.8 49.8 8.2 0.0 2.8 1.6

JPMorgan Chase & Co. 7.7 8.8 8.8 8.5 7.3 14.4 3.9 1.9

Keycorp 7.3 10.3 12.6 5.8 7.2 19.1 8.8 2.8

Morgan Stanley 3.1 0.6 9.5 7.8 10.2 0.0 1.4 0.8

The PNC Financial Services Group, Inc. 5.8 6.1 6.3 6.4 7.3 15.5 3.5 1.6

Regions Financial Corporation 7.6 8.2 8.5 6.7 9.7 18.0 6.8 2.2

State Street Corporation 2.0 0.0 0.0 0.0 18.3 0.0 0.0 1.5

SunTrust Banks, Inc. 6.4 6.5 11.4 6.2 9.7 15.0 2.6 2.2

U.S. Bancorp 7.1 2.8 6.1 9.5 8.0 17.3 5.4 3.8

Wells Fargo & Company 7.1 7.1 9.3 6.6 8.6 17.7 5.9 1.6

18 participating bank holding companies 7.5 6.6 9.6 6.8 8.0 16.7 6.1 1.8

Note: These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are not forecasts of expected

loan losses.

Average balances used for profitability ratios and portfolio loss rates are averages over the nine-quarter period. Estimates may not sum precisely due to rounding.

1

Commercial and industrial loans include small and medium enterprise loans and corporate cards. Other loans include international real estate loans. Average loan balances

used to calculate portfolio loss rates exclude loans held for sale and loans held for investment under the fair-value option.

March 2013 23
Figure 12. First-lien mortgages, domestic loss rates in the severely adverse scenario

0.0

3.0

6.0

9.0

12.0

0.0

3.0

6.0

9.0

12.0

Percent Percent 

Median = 6%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

Figure 13. Junior liens and HELOCs, domestic loss rates in the severely adverse scenario

0.0

4.0

8.0

12.0

16.0

20.0

24.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

Percent Percent 

Median = 9.4%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

24 DFAST 2013: Methodology and Results
Figure 14. Commercial and industrial loss rates in the severely adverse scenario

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Percent 

49.8 

Percent 

Median = 6.5%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances. Losses are calculated based on the exposure at default, which

includes both outstanding balances and any additional drawdown of the credit line that occurs prior to default, while loss rates are calculated as a percent of outstanding

balances.

Source: Federal Reserve estimates in the severely adverse scenario.

Figure 15. Commercial real estate, domestic loss rates in the severely adverse scenario

0.0

4.0

8.0

12.0

16.0

20.0

0.0

4.0

8.0

12.0

16.0

20.0

Percent Percent 

Median = 7.8%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

March 2013 25
Figure 16. Credit card loss rates in the severely adverse scenario

0.0

4.0

8.0

12.0

16.0

20.0

24.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

Percent Percent 

Median = 15.8%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

Figure 17. Other consumer loss rates in the severely adverse scenario

0.0

4.0

8.0

12.0

16.0

20.0

0.0

4.0

8.0

12.0

16.0

20.0

Percent Percent 

Median = 4.1%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

26 DFAST 2013: Methodology and Results
Figure 18. Other loan loss rates in the severely adverse scenario

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Percent Percent 

Median = 1.8%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average balances.

Source: Federal Reserve estimates in the severely adverse scenario.

Figure 19. PPNR rates in the severely adverse scenario

-3.0

0.0

3.0

6.0

9.0

12.0

-3.0

0.0

3.0

6.0

9.0

12.0

Percent Percent 

Median = 2.7%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average assets.

Source: Federal Reserve estimates in the severely adverse scenario.

March 2013 27
increases during the early quarters of the planning

horizon, given the increased economic stress in the

severely adverse scenario, and then declines as the

economic stress abates.

The Federal Reserve’s projections of pre-tax net

income under the severely adverse scenario imply

negative net income at most of the 18 BHCs individually, and for the BHCs as a group, over the nine

quarter planning horizon. As table 1 shows, projected

net income before taxes (“pre-tax net income”) is

-$194 billion over the planning horizon for the 18

BHCs.

Figure 20 illustrates the ratio of pre-tax net income

to average assets for each of the 18 BHCs. The ratio

ranges between -7.1 percent and 1.6 percent. Projected cumulative net income for most of the BHCs

(13 of 18) is negative over the planning horizon. Differences across the firms reflect differences in the sensitivity of the various components of net income to

the economic and financial market conditions in the

severely adverse scenario. Projected net income for

the six BHCs with large trading operations is also

affected by the effect of the global market shock on

their trading, private equity, and counterparty exposures from derivatives and financing transactions,

introducing some additional variation in projected

net income between these six BHCs and the other

firms participating in DFAST 2013.

Figure 20. Pre-tax net income rates in the severely adverse scenario

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Percent Percent 

Median = -1.7%

Ally

AmEx

BofA

BNYM

BB&T

CapOne

Citi

Fifth Third

Goldman

JPMC

KeyCorp

Morgan Stanley

PNC

Regions

State St

SunTrust

USB

Wells

Note: Estimates are for the nine-quarter period from Q4 2012 to Q4 2014 as a percent of average assets.

Source: Federal Reserve estimates in the severely adverse scenario.

28 DFAST 2013: Methodology and Results
Appendix A: Severely Adverse Scenario

This appendix includes the severely adverse scenario

provided by the Federal Reserve.

It is important to note that the severely adverse scenario is not a forecast but rather a hypothetical scenario to be used to assess the strength and resilience of

BHC capital in a severely adverse economic environment. The severely adverse scenario, while unlikely,

represents an outcome in which the U.S. economy

experiences a significant recession and financial market distress, and economic activity in other major

economies also contracts significantly.

29
Table A.1. Supervisory severely adverse scenario: Domestic

Date Real GDP

growth

Nominal

GDP

growth

Real

disposable

income

growth

Nominal

disposable

income

growth

Unemployment

rate

CPI

inflation

rate

3-month

Treasury

yield

10-year

Treasury

yield

BBB

corporate

yield

Mortgage

rate

Dow Jones

Total Stock

Market

Index

House

Price

Index

Commercial

Real Estate

Price Index

Market

Volatility

Index

(VIX)

Q1 2001 -1.3 1.4 3.0 6.0 4.2 3.9 4.8 5.3 7.4 7.0 10645.9 112.3 140.8 32.8

Q2 2001 2.6 5.5 -1.1 0.8 4.4 2.8 3.7 5.5 7.5 7.2 11407.2 114.5 140.0 34.7

Q3 2001 -1.1 0.2 10.6 10.7 4.8 1.1 3.2 5.3 7.3 6.9 9563.0 116.7 143.7 43.7

Q4 2001 1.4 2.7 -4.6 -4.4 5.5 -0.3 1.9 5.1 7.2 6.8 10707.7 119.1 137.9 35.3

Q1 2002 3.5 4.9 11.2 12.3 5.7 1.3 1.7 5.4 7.6 7.0 10775.7 121.4 139.7 26.1

Q2 2002 2.1 4.0 2.2 5.4 5.8 3.2 1.7 5.4 7.6 6.7 9384.0 124.3 137.4 28.4

Q3 2002 2.0 3.8 -1.4 0.6 5.7 2.2 1.6 4.5 7.3 6.2 7773.6 127.8 140.9 45.1

Q4 2002 0.1 2.5 1.0 2.9 5.9 2.4 1.3 4.3 7.0 6.1 8343.2 130.4 144.2 42.6

Q1 2003 1.7 4.5 1.5 4.4 5.9 4.2 1.2 4.2 6.5 5.8 8051.9 133.4 148.7 34.7

Q2 2003 3.4 4.6 6.2 6.5 6.1 -0.7 1.0 3.8 5.7 5.5 9342.4 136.2 151.2 29.1

Q3 2003 6.7 9.1 5.7 8.5 6.1 3.0 0.9 4.4 6.0 6.1 9649.7 139.8 152.2 22.7

Q4 2003 3.7 5.8 2.3 4.2 5.8 1.5 0.9 4.4 5.8 5.9 10799.6 144.3 150.1 21.1

Q1 2004 2.7 6.3 1.8 5.2 5.7 3.4 0.9 4.1 5.5 5.6 11039.4 150.2 155.8 21.6

Q2 2004 2.6 6.1 4.0 7.1 5.6 3.2 1.1 4.7 6.1 6.2 11138.9 156.4 162.6 20.0

Q3 2004 3.0 6.0 2.7 5.3 5.4 2.6 1.5 4.4 5.8 5.8 10895.5 162.2 173.9 19.3

Q4 2004 3.3 6.4 5.7 9.2 5.4 4.4 2.0 4.3 5.4 5.7 11971.1 167.8 178.4 16.6

Q1 2005 4.2 8.1 -4.8 -2.5 5.3 2.0 2.5 4.4 5.4 5.8 11638.3 176.1 179.6 14.6

Q2 2005 1.8 4.5 2.8 5.4 5.1 2.7 2.9 4.2 5.5 5.7 11876.7 183.8 186.5 17.7

Q3 2005 3.2 7.5 2.4 7.1 5.0 6.2 3.4 4.3 5.5 5.8 12289.3 189.9 190.8 14.2

Q4 2005 2.1 5.5 2.2 5.8 5.0 3.8 3.8 4.6 5.9 6.3 12517.7 194.9 199.6 16.5

Q1 2006 5.1 8.3 7.7 9.5 4.7 2.1 4.4 4.7 6.0 6.3 13155.4 199.7 203.0 14.6

Q2 2006 1.6 5.2 3.6 6.7 4.6 3.7 4.7 5.2 6.5 6.6 12849.3 199.7 211.9 23.8

Q3 2006 0.1 3.1 1.9 4.9 4.6 3.8 4.9 5.0 6.4 6.5 13346.0 197.5 224.2 18.6

Q4 2006 2.7 4.6 5.3 5.3 4.4 -1.6 4.9 4.7 6.1 6.2 14257.6 198.0 221.1 12.7

Q1 2007 0.5 5.2 1.8 5.8 4.5 4.0 5.0 4.8 6.1 6.2 14409.3 196.4 233.3 19.6

Q2 2007 3.6 6.5 0.6 4.1 4.5 4.6 4.7 4.9 6.3 6.4 15210.7 192.1 241.5 18.9

Q3 2007 3.0 4.3 1.6 3.9 4.7 2.6 4.3 4.8 6.5 6.5 15362.0 186.4 257.8 30.8

Q4 2007 1.7 3.6 2.2 6.5 4.8 5.0 3.4 4.4 6.4 6.2 14819.6 180.7 260.2 31.1

Q1 2008 -1.8 0.6 5.9 10.0 5.0 4.4 2.1 3.9 6.5 5.9 13332.0 174.5 253.6 32.2

Q2 2008 1.3 4.0 8.2 13.1 5.3 5.4 1.6 4.1 6.8 6.2 13073.5 166.7 242.1 31.0

Q3 2008 -3.7 -0.6 -8.8 -4.9 6.0 6.4 1.5 4.1 7.2 6.3 11875.4 159.8 246.8 46.7

Q4 2008 -8.9 -8.4 -0.2 -5.8 6.9 -9.0 0.3 3.7 9.4 5.8 9087.2 152.0 231.9 80.9

Q1 2009 -5.3 -4.4 -4.7 -6.8 8.3 -2.5 0.2 3.2 9.0 5.0 8113.1 144.1 211.2 56.7

Q2 2009 -0.3 -1.1 -0.5 1.1 9.3 1.9 0.2 3.7 8.2 5.1 9424.9 142.3 175.4 42.3

Q3 2009 1.4 1.9 -6.1 -3.3 9.6 3.6 0.2 3.8 6.8 5.1 10911.7 144.0 158.7 31.3

Q4 2009 4.0 5.3 -0.6 2.5 9.9 3.0 0.1 3.7 6.1 4.9 11497.4 144.8 158.0 30.7

Q1 2010 2.3 3.9 5.7 7.6 9.8 0.9 0.1 3.9 5.8 5.0 12161.0 145.5 153.5 27.3

Q2 2010 2.2 4.1 6.3 6.9 9.6 -0.3 0.1 3.6 5.6 4.8 10750.0 145.7 169.3 45.8

Q3 2010 2.6 4.6 1.2 2.5 9.5 1.4 0.2 2.9 5.1 4.4 11947.1 142.5 171.1 32.9

Q4 2010 2.4 4.5 1.0 3.1 9.6 3.0 0.1 3.0 5.0 4.5 13290.0 140.2 179.8 23.5

Q1 2011 0.1 2.2 4.4 7.7 9.0 4.5 0.1 3.5 5.4 4.9 14036.4 138.8 186.4 29.4

Q2 2011 2.5 5.2 -1.5 2.0 9.0 4.4 0.0 3.3 5.1 4.6 13968.1 137.7 184.4 22.7

Q3 2011 1.3 4.3 -1.3 1.1 9.1 3.1 0.0 2.5 4.9 4.2 11771.9 137.2 184.6 48.0

Q4 2011 4.1 4.2 -0.2 0.9 8.7 1.3 0.0 2.1 5.0 4.0 13109.6 135.9 194.1 45.5

Q1 2012 2.0 4.2 3.7 6.3 8.3 2.5 0.1 2.1 4.7 3.9 14753.1 137.9 195.2 23.0

Q2 2012 1.3 2.8 3.1 3.8 8.2 0.8 0.1 1.8 4.5 3.7 14208.6 141.3 196.8 26.7

Q3 2012 2.0 5.0 0.8 2.6 8.1 2.3 0.1 1.6 4.2 3.5 14997.8 143.4 198.6 20.5

Q4 2012 -3.5 0.0 -3.8 -2.3 8.9 1.8 0.1 1.4 5.6 4.1 12105.2 141.6 195.8 72.1

(continued on next page)

30 DFAST 2013: Methodology and Results
Table A.1. Supervisory severely adverse scenario: Domestic—continued

Date Real GDP

growth

Nominal

GDP

growth

Real

disposable

income

growth

Nominal

disposable

income

growth

Unemployment

rate

CPI

inflation

rate

3-month

Treasury

yield

10-year

Treasury

yield

BBB

corporate

yield

Mortgage

rate

Dow Jones

Total Stock

Market

Index

House

Price

Index

Commercial

Real Estate

Price Index

Market

Volatility

Index

(VIX)

Q1 2013 -6.1 -4.7 -6.7 -5.9 10.0 1.4 0.1 1.2 6.4 4.5 9652.6 137.9 185.8 76.6

Q2 2013 -4.4 -3.3 -4.6 -4.0 10.7 1.1 0.1 1.2 6.7 4.7 9032.8 133.6 178.2 76.4

Q3 2013 -4.2 -3.6 -3.2 -2.8 11.5 1.0 0.1 1.2 6.8 4.8 7269.1 129.0 171.8 79.4

Q4 2013 -1.2 -1.2 -1.5 -1.8 11.9 0.3 0.1 1.2 6.5 4.7 7221.7 124.7 163.1 71.7

Q1 2014 0.0 0.3 0.8 1.2 12.0 1.0 0.1 1.2 6.2 4.7 7749.3 120.6 160.4 70.6

Q2 2014 2.2 2.2 0.9 1.3 12.1 0.9 0.1 1.5 6.2 4.7 8133.9 117.2 158.8 64.5

Q3 2014 2.6 2.4 2.5 2.7 12.0 0.7 0.1 1.7 6.0 4.6 9026.1 115.0 156.3 58.6

Q4 2014 3.8 3.5 2.8 2.9 11.9 0.6 0.1 1.9 5.9 4.5 9706.7 113.6 157.6 53.0

Q1 2015 4.2 3.8 3.6 3.6 11.7 0.5 0.1 2.0 5.8 4.5 10211.0 113.2 157.1 50.1

Q2 2015 4.1 3.7 3.7 3.6 11.5 0.5 0.1 2.1 5.8 4.5 12645.7 113.6 157.4 40.9

Q3 2015 4.6 4.1 3.4 3.1 11.4 0.3 0.1 2.2 5.6 4.4 13854.4 114.4 162.7 26.3

Q4 2015 4.6 4.0 3.1 2.8 11.1 0.3 0.1 2.2 5.4 4.3 15294.9 115.5 166.0 17.1

Note: Refer to “Data Notes” on page 34 for more information on variables.

March 2013 31
Table A.2. Supervisory severely adverse scenario: International

Date

Euro area

real GDP

growth

Euro area

inflation

Euro area

bilateral

dollar

exchange

rate

($/euro)

Developing

Asia

real GDP

growth

Developing

Asia

inflation

Developing

Asia

bilateral

dollar

exchange

rate

(F/USD,

index,

base =

2000 Q1)

Japan

real GDP

growth

Japan

inflation

Japan

bilateral

dollar

exchange

rate

(yen/USD)

U.K.

real GDP

growth

U.K.

inflation

U.K.

bilateral

dollar

exchange

rate

(USD/pound)

Q1 2001 3.7 1.1 0.9 3.9 1.6 105.9 2.9 0.6 125.5 5.4 0.1 1.4

Q2 2001 0.4 4.1 0.8 6.0 2.0 106.0 -1.0 -2.0 124.7 2.7 3.1 1.4

Q3 2001 0.3 1.4 0.9 4.6 1.2 106.3 -4.2 -0.6 119.2 2.2 1.0 1.5

Q4 2001 0.6 1.7 0.9 6.9 -0.2 106.7 -0.7 -1.8 131.0 1.5 0.0 1.5

Q1 2002 0.6 3.0 0.9 7.4 0.3 107.2 -0.6 -1.1 132.7 1.7 1.9 1.4

Q2 2002 2.3 2.0 1.0 9.2 0.7 104.7 4.1 0.1 119.9 3.4 0.9 1.5

Q3 2002 1.2 1.6 1.0 4.9 1.5 105.4 2.6 -0.4 121.7 3.4 1.4 1.6

Q4 2002 0.1 2.4 1.0 6.3 0.7 104.4 1.5 -0.6 118.8 3.8 1.9 1.6

Q1 2003 -0.2 3.3 1.1 6.9 3.2 105.4 -2.1 0.0 118.1 2.4 1.6 1.6

Q2 2003 0.3 0.3 1.2 2.8 1.2 103.9 5.1 0.3 119.9 4.9 0.3 1.7

Q3 2003 1.8 2.2 1.2 13.5 0.0 102.6 1.5 -0.6 111.4 5.0 1.7 1.7

Q4 2003 2.9 2.2 1.3 11.8 5.6 103.3 4.4 -0.7 107.1 4.9 1.7 1.8

Q1 2004 2.1 2.3 1.2 4.6 4.2 101.4 4.1 0.6 104.2 3.0 1.3 1.8

Q2 2004 2.2 2.4 1.2 6.3 4.0 102.7 -0.1 -0.3 109.4 1.0 1.0 1.8

Q3 2004 1.5 2.0 1.2 8.8 3.9 102.7 0.4 0.0 110.2 0.0 1.1 1.8

Q4 2004 1.4 2.5 1.4 8.0 0.7 99.0 -0.9 1.8 102.7 2.5 2.4 1.9

Q1 2005 0.8 1.5 1.3 7.9 2.8 98.7 0.8 -0.9 107.2 2.5 2.6 1.9

Q2 2005 3.0 2.2 1.2 7.3 1.7 99.0 5.4 -1.2 110.9 5.1 1.8 1.8

Q3 2005 2.4 3.2 1.2 9.8 2.5 98.6 1.3 -1.3 113.3 3.3 2.7 1.8

Q4 2005 2.6 2.5 1.2 10.7 1.8 98.1 0.9 0.7 117.9 4.4 1.4 1.7

Q1 2006 3.8 1.6 1.2 12.1 2.4 96.8 1.7 1.3 117.5 2.0 1.9 1.7

Q2 2006 4.3 2.5 1.3 8.0 3.1 96.8 1.6 -0.1 114.5 1.2 3.0 1.8

Q3 2006 2.8 2.0 1.3 8.7 1.8 96.4 -0.4 0.5 118.0 0.8 3.3 1.9

Q4 2006 4.2 1.0 1.3 10.8 4.0 94.6 5.4 -0.4 119.0 3.8 2.6 2.0

Q1 2007 3.3 2.2 1.3 14.7 3.8 94.0 4.1 -0.3 117.6 4.6 2.6 2.0

Q2 2007 1.8 2.3 1.4 10.3 4.8 92.0 0.2 0.0 123.4 5.0 1.6 2.0

Q3 2007 2.5 2.1 1.4 8.9 7.6 90.7 -1.4 0.1 115.0 4.8 0.3 2.0

Q4 2007 1.7 5.0 1.5 10.3 6.3 89.4 3.7 2.3 111.7 0.7 4.0 2.0

Q1 2008 2.1 4.2 1.6 8.6 7.9 88.0 2.7 1.3 99.9 0.3 3.7 2.0

Q2 2008 -1.4 3.1 1.6 8.1 6.4 88.6 -5.2 1.7 106.2 -3.6 5.5 2.0

Q3 2008 -2.4 3.2 1.4 3.8 2.8 91.3 -3.7 3.4 105.9 -6.9 5.9 1.8

Q4 2008 -6.6 -1.3 1.4 -0.1 -1.3 92.0 -12.4 -2.2 90.8 -8.1 0.6 1.5

Q1 2009 -10.7 -1.2 1.3 3.4 -1.2 94.0 -15.0 -3.5 99.2 -5.9 0.0 1.4

Q2 2009 -1.1 -0.1 1.4 16.1 2.5 92.1 6.3 -1.7 96.4 -0.7 1.9 1.6

Q3 2009 1.5 1.3 1.5 12.9 4.6 91.1 1.0 -1.4 89.5 1.6 3.7 1.6

Q4 2009 1.6 1.7 1.4 8.0 5.3 90.5 7.1 -1.5 93.1 1.7 3.2 1.6

Q1 2010 1.9 1.6 1.4 9.4 5.0 89.7 5.1 1.1 93.4 2.4 4.1 1.5

Q2 2010 4.2 1.7 1.2 8.7 3.5 90.8 5.1 -1.2 88.5 2.9 2.7 1.5

Q3 2010 1.5 2.0 1.4 8.8 3.8 88.2 4.7 -2.2 83.5 2.5 2.6 1.6

Q4 2010 1.4 2.7 1.3 8.2 7.9 87.2 -1.1 1.2 81.7 -1.7 4.3 1.5

Q1 2011 2.6 3.4 1.4 9.6 6.4 86.3 -8.0 0.0 82.8 2.0 6.6 1.6

Q2 2011 0.9 2.9 1.5 6.7 5.6 85.2 -2.1 -0.7 80.6 0.3 4.0 1.6

Q3 2011 0.3 1.9 1.3 6.8 5.5 87.2 9.5 0.1 77.0 2.1 4.2 1.6

Q4 2011 -1.3 3.6 1.3 6.7 2.6 87.0 -1.2 -0.7 77.0 -1.4 3.9 1.6

Q1 2012 0.0 2.4 1.3 6.1 2.9 86.1 5.2 2.3 82.4 -1.2 1.8 1.6

Q2 2012 -0.7 2.0 1.3 5.7 4.6 87.9 0.3 -0.9 79.8 -1.5 1.1 1.6

Q3 2012 -0.5 2.3 1.3 7.0 2.1 86.1 -3.5 -2.0 77.9 4.1 3.0 1.6

Q4 2012 -8.7 1.6 1.2 0.3 2.5 97.2 -1.4 -4.4 75.7 -6.5 1.6 1.6

(continued on next page)

32 DFAST 2013: Methodology and Results
Table A.2. Supervisory severely adverse scenario: International—continued

Date

Euro area

real GDP

growth

Euro area

inflation

Euro area

bilateral

dollar

exchange

rate

($/euro)

Developing

Asia

real GDP

growth

Developing

Asia

inflation

Developing

Asia

bilateral

dollar

exchange

rate

(F/USD,

index,

base =

2000 Q1)

Japan

real GDP

growth

Japan

inflation

Japan

bilateral

dollar

exchange

rate

(yen/USD)

U.K.

real GDP

growth

U.K.

inflation

U.K.

bilateral

dollar

exchange

rate

(USD/pound)

Q1 2013 -6.8 1.0 1.1 3.9 1.8 97.9 -4.5 -4.1 77.8 -6.6 0.7 1.6

Q2 2013 -4.3 0.4 1.1 5.9 0.5 96.9 -6.5 -5.0 78.7 -3.7 -0.6 1.6

Q3 2013 -2.3 0.2 1.1 6.9 0.0 95.1 -6.8 -4.7 78.7 -1.4 -1.0 1.6

Q4 2013 -0.8 0.2 1.1 7.5 0.1 93.0 -5.5 -3.6 78.4 0.1 -0.7 1.6

Q1 2014 0.4 0.4 1.1 7.9 0.6 91.2 -3.1 -1.9 78.2 0.9 0.0 1.6

Q2 2014 1.2 0.6 1.1 8.1 1.1 89.7 -1.1 -0.5 78.1 1.6 0.6 1.6

Q3 2014 1.7 0.8 1.1 8.3 1.4 88.5 0.3 0.3 78.2 2.1 1.0 1.6

Q4 2014 2.0 0.9 1.1 8.4 1.7 87.5 1.1 0.5 78.5 2.7 1.3 1.5

Q1 2015 2.0 1.1 1.1 8.5 1.8 86.6 1.4 0.4 79.0 3.2 1.4 1.5

Q2 2015 2.0 1.2 1.2 8.5 1.9 86.0 1.5 0.2 79.6 3.5 1.5 1.5

Q3 2015 2.0 1.3 1.2 8.6 2.0 85.5 1.6 0.1 80.3 3.6 1.6 1.5

Q4 2015 2.0 1.4 1.2 8.6 2.1 85.2 1.6 0.1 80.9 3.7 1.6 1.5

Note: Refer to “Data Notes” on page 34 for more information on variables.

March 2013 33
Data Notes

Sources for data through 2012:Q3 (as released through 11/13/2012).

U.S. real GDP growth: Percent change in real Gross Domestic Product at an annualized rate, Bureau of Economic Analysis.

U.S. nominal GDP growth: Percent change in nominal Gross Domestic Product at an annualized rate, Bureau of

Economic Analysis.

U.S. real disposable income growth: Percent change in nominal disposable personal income divided by the price

index for personal consumption expenditures at an annualized rate, Bureau of Economic Analysis.

U.S. nominal disposable income growth: Percent change in nominal disposable personal income at an annualized

rate, Bureau of Economic Analysis.

U.S. unemployment rate: Quarterly average of monthly data, Bureau of Labor Statistics.

U.S. CPI inflation: Percent change in the Consumer Price Index at an annualized rate, Bureau of Labor

Statistics.

U.S. 3-month Treasury yield: Quarterly average of 3-month Treasury bill secondary market rate discount basis,

Federal Reserve Board.

U.S. 10-year Treasury yield: Quarterly average of the yield on 10-year U.S. Treasury bonds, constructed for

FRB/U.S. model by Federal Reserve staff based on the Svensson smoothed term structure model; see Lars E.

O. Svensson (1995), “Estimating Forward Interest Rates with the Extended Nelson-Siegel Method,” Quarterly

Review, no. 3, Sveriges Riksbank, pp. 13–26.

U.S. BBB corporate yield: Quarterly average of the yield on 10-year BBB-rated corporate bonds, constructed

for FRB/U.S. model by Federal Reserve staff using a Nelson-Siegel smoothed yield curve model; see Charles R.

Nelson and Andrew F. Siegel (1987), “Parsimonious Modeling of Yield Curves,” Journal of Business, vol. 60,

pp. 473–89. Data prior to 1997 is based on the WARGA database. Data after 1997 is based on the Merrill

Lynch database.

U.S. mortgage rate: Quarterly average of weekly series of Freddie Mac data.

U.S. Dow Jones Total Stock Market Index: End of quarter value, Dow Jones.

U.S. House Price Index: CoreLogic, index level, seasonally adjusted by Federal Reserve staff.

U.S. Commercial Real Estate Price Index: From Flow of Funds Accounts of the United States, Federal Reserve

Board (Z.1 release); the series corresponds to the data for price indexes: Commercial Real Estate Price Index

(series FL075035503.Q), divided by 1,000.

U.S. Market Volatility Index (VIX): Chicago Board Options Exchange, converted to quarterly by using the

maximum value in any quarter.

Euro area real GDP growth: Staff calculations based on Statistical Office of the European Communities via

Haver, extended back using ECB Area Wide Model dataset (ECB Working Paper series no. 42).

Euro area inflation: Staff calculations based on Statistical Office of the European Communities via Haver.

Developing Asia real GDP growth: Staff calculations based on Bank of Korea via Haver; Chinese National

Bureau of Statistics via CEIC; Indian Central Statistical Organization via CEIC; Census and Statistics Depart34 DFAST 2013: Methodology and Results
ment of Hong Kong via CEIC; and Taiwan Directorate-General of Budget, Accounting, and Statistics via

CEIC.

Developing Asia inflation: Staff calculations based on Bank of Korea via CEIC; Chinese Statistical Information

and Consultancy Service via CEIC and IMF Recent Economic Developments; Labour Bureau of India via

CEIC and IMF; Census and Statistics Department of Hong Kong via CEIC; and Taiwan Directorate-General

of Budget, Accounting, and Statistics via CEIC.

Japan real GDP growth: Cabinet Office via Haver.

Japan inflation: Ministry of Internal Affairs and Communications via Haver.

U.K. real GDP growth: Office of National Statistics via Haver.

U.K. inflation: Office of National Statistics (uses Retail Price Index to extend series back to 1960) via Haver.

Exchange rates: Bloomberg.

March 2013 35

Appendix B: Models to Project

Net Income and Stressed Capital

This appendix describes the models used to project

stressed capital ratios and pre-tax net income and its

components for the 18 BHCs subject to DFAST

2013.27 The models fall into four broad categories:

1. Models to project losses on loans held in the

accrual loan portfolio.

2. Models to project other types of losses, including

those from changes in fair value on loans held for

sale or measured under the fair-value option,

securities, trading and counterparty exposures,

losses related to operational-risk events, and

mortgage repurchase/put-back losses.

3. Models to project the components of PPNR (revenues and non-credit-related expenses).

4. The model to project capital ratios, given projections of pre-tax net income, assumptions for

determining provisions into the ALLL, and

assumed capital actions under the Dodd-Frank

Act stress test rule.

A majority of the models described here were refined

incrementally over the past year—in some instances,

benefitting from more granular data collection

through the FR Y-14 report. However, some of the

models were either changed substantially or newly

implemented for DFAST 2013, including the commercial real estate mortgage model, the credit card

model, the modeling of losses due to operational-risk

events, and the PPNR model.

Losses on the Accrual Loan Portfolio

More than a dozen individual models are used to

project losses on loans held in the accrual loan portfolio. The individual loan types modeled can broadly

be divided into wholesale loans, such as commercial

and industrial (C&I) loans and commercial real estate

(CRE) loans, and retail loans, including various types

of residential mortgages, credit cards, student loans,

auto loans, small business loans, and other consumer

lending. In some cases, these major categories comprise several subcategories, each with its own loss

projection model, but the models within a subcategory are similar in structure and approach. The

models project losses using detailed loan portfolio

data provided by the BHCs on the FR Y-14 report.

Two general approaches are taken to model losses on

the accrual loan portfolio. In the first approach—an

approach broadly used for DFAST 2013—the models

estimate expected losses under the macroeconomic

scenario; that is, they project the probability of

default (PD), loss given default (LGD), and exposure

at default (EAD) for each quarter of the planning

horizon. Expected losses in quarter t are the product

of these three components:

Losst = PDt * LGDt * EADt

PD is generally modeled as part of a transition process in which loans move from one payment status to

another (e.g., from current to delinquent) in response

to economic conditions. Default is the last possible

transition and PD represents the likelihood that a

loan will default during a given period. The number

of payment statuses and the transition paths modeled

differ by loan type.

LGD is typically defined as a percentage of EAD

and is based on historical data. For some loan types,

27 In connection with DFAST 2013, and in addition to the models

developed and data collected by the Federal Reserve, the Federal Reserve used proprietary models or data licensed from the

following providers: Andrew Davidson & Co., Inc.; BlackRock

Financial Management, Inc.; Bloomberg Finance L.P.; CB

Richard Ellis, Inc.; CoreLogic Solutions, LLC; Equifax Information Services LLC; Fitch Solutions, Inc.; Intex Solutions,

Inc.: Investortools, Inc.; McDash Analytics, LLC, a wholly

owned subsidiary of Lender Processing Services, Inc.; Markit

Group; Moody’s Analytics, Inc.; Morningstar Credit Ratings,

LLC; Municipal Securities Rulemaking Board; and Standard &

Poor’s Financial Services LLC. In addition, with respect to the

global market shock component of the severely adverse scenario, the Federal Reserve used proprietary data licensed from

the following providers: Bank of America Corporation; Barclays Bank PLC; Bloomberg Finance L.P.; JPMorgan Chase &

Co.; Markit Group; Moody’s Analytics, Inc.; Standard & Poor’s

Financial Services LLC; and Thomson Reuters LLC.

37
LGD is modeled as a function of borrower, collateral, or loan characteristics and the macroeconomic

variables from the severely adverse scenario. For

other loan types, it is assumed to be a fixed percentage for all loans in a category. Finally, the approach

to EAD varies by loan type and depends on whether

the outstanding loan amount can change between the

current period and the period in which the loan

defaults (e.g., for lines of credit).

In the second approach, the models capture the historical behavior of net charge-offs relative to changes

in macroeconomic and financial market variables and

loan portfolio characteristics.

The loss models primarily focus on losses arising

from loans in the accrual loan portfolio as of September 30, 2012. The loss projections also incorporate losses on loans originated or purchased after the

planning horizon begins. These incremental loan balances are calculated based on the BHCs’ own projections of loan balances over the planning horizon

under the severely adverse scenario. These balances

are assumed to have the same risk characteristics as

those of the loan portfolio as of September 30, 2012,

with the exception of loan age in the retail portfolios,

where seasoning is incorporated. This is a simple, but

generally conservative, assumption.

Loss projections generated by the models are

adjusted to take account of purchase accounting

treatment, which recognizes discounts on impaired

loans acquired during mergers, and any other writedowns already taken on loans held in the accrual loan

portfolio. This latter adjustment ensures that losses

related to these loans are not double-counted in the

projections.

Wholesale Lending: Corporate Loans

Losses stemming from default on corporate loans are

projected at the loan level using an expected-loss

modeling framework. Corporate loans consist of a

number of different categories of loans, as defined by

the FR Y-9C. The largest group of these loans

include C&I loans, which are generally defined as

loans with more than $1 million in committed balances and are “graded” using a BHC’s corporate

loan rating process.28

The PD for a C&I loan is projected over the planning

horizon by first calculating the loan’s PD at the

beginning of the planning horizon and then projecting it forward using an estimated equation that

relates historical changes in PD to changes in the

macroeconomic environment. The PD as of September 30, 2012, is calculated for every C&I loan in a

BHC’s portfolio using detailed, loan-level information submitted by the BHC. For publicly traded borrowers, a borrower-specific PD, based on the

expected default frequency, is used. For other borrowers, the PD is estimated based on the BHC’s

internal credit rating, which is converted to a standardized rating scale. Loans that are 90 days past

due, in non-accrual status, or that have an ASC

310-10 reserve as of September 30, 2012 are assigned

a PD of 100 percent.

Quarterly changes in the PD after the third quarter

of 2012 are projected over the planning horizon

using a series of equations that relate historical

changes in the average PD as a function of changes

in macroeconomic variables, including changes in

real GDP, the unemployment rate, and the spread on

BBB-rated corporate bonds. The equations are estimated separately by borrower industries, credit quality categories, and countries.

The LGD for a C&I loan at the beginning of the

planning horizon is determined by the line of business, seniority of lien (if secured), country, and ASC

310-10 reserve, if applicable. The LGD is then projected forward by relating the change in the LGD to

changes in the PD. In the model, the PD is used as a

proxy for economic conditions, and, by construct,

increases in PD generally lead to higher LGDs.

The EAD for closed-end C&I loans is assumed to

equal the loan’s outstanding balance. The EAD for

C&I revolving lines of credit equals the sum of the

funded balance and a portion of the unfunded commitment, which reflects the amount that is likely to

be drawn down by the borrower in the event of

default. This drawdown amount was estimated based

on the historical drawdown experience for defaulted

U.S. syndicated loans that are in the Shared National

Credit (SNC) database.29 The EAD for standby letters of credit and trade finance credit are conservatively assumed to equal the total commitment.

28 All definitions of loan categories and default in this appendix

are definitions used for the purposes of the supervisory stress

test models and do not necessarily align with general industry

definitions or classifications.

29 SNCs have commitments of greater than $20 million and are

held by three or more regulated participating entities. See www

.federalreserve.gov/bankinforeg/snc.htm for additional information about SNCs.

38 DFAST 2013: Methodology and Results
Other corporate loans that are similar in some

respects to C&I loans are modeled using the same

framework. These loans include owner-occupied

commercial real estate loans, capital equipment

leases, loans to depositories, and other loans.30 Projected losses for these loans are disclosed in the other

loans category.

Wholesale Lending: Commercial

Real Estate Mortgages

CRE mortgages are loans collateralized by domestic

and international multifamily or non-farm, nonresidential properties, and construction and land

development loans (C&LD), as defined by the FR

Y-9C. Losses stemming from default on CRE mortgages are projected at the loan level using an

expected-loss modeling framework.

The PD model for CRE mortgages is a hazard model

of the probability that a loan transitions from current to default status, given the characteristics of the

loan as well as macroeconomic variables, such as

house prices and CRE vacancy rates, at both the geographic market and national level. Once defaulted,

the model assumes the loan does not re-perform; the

effect of re-performance on the estimated loan loss is

captured in the LGD model. A CRE mortgage loan

is considered in default if it is 90 days past due, in

non-accrual status, has an ASC 310-10 reserve, or

had a very low internal credit rating at the most

recent time its maturity was extended. The effect of

seasoning and loan maturity on the PD is estimated

to be different for income-producing and C&LD

loans, and is estimated separately for each loan type

using historical FR Y-14 data. However, the effect of

other loan characteristics and the macroeconomic

variables is assumed to be the same for incomeproducing properties and C&LD loans and is estimated using a single model for both types of loans

using historical CMBS data.

The LGD for CRE mortgages is estimated using

Y-14 data on ASC 310-10 reserves. The model first

estimates the probability that a defaulted loan will

have losses as a function of loan characteristics and

macroeconomic variables, and then, using loans with

losses, estimates the loss on the CRE mortgage, as a

function of the expected probability of loss, characteristics of the loan, and macroeconomic variables.

Finally, the EAD for CRE mortgages is assumed to

equal the loan’s outstanding balance for amortizing

loans and the full committed balance for C&LD

loans.

Retail Lending: Residential Mortgages

Residential mortgages held in BHC portfolios include

first and junior liens, either closed-end loans or

revolving credits, that are secured by one- to-fourfamily residential real estate as defined by the FR

Y-9C. Losses stemming from default on residential

mortgages are projected at the loan level using an

expected-loss modeling framework.31

The PD model for first-lien residential mortgages

estimates the probability that a loan transitions to

different payment statuses, including current, delinquent, default, and paid off. Separate PD models are

estimated for three types of closed-end, first-lien

mortgages: fixed-rate, adjustable-rate, and option

adjustable-rate mortgages. The PD model specification varies somewhat by loan type, but in general,

each model estimates the probability that a loan transitions from one payment state to another (e.g., from

current to delinquent or from delinquent to default)

over a single quarter, given the characteristics of the

loan, borrower, and underlying property as well as

macroeconomic variables such as local house prices,

the statewide unemployment rate, and interest rates.32

Origination vintage effects are also included in part

to capture unobserved characteristics of loan quality.

The historical data used to estimate this model are

industry-wide, loan-level data from many banks and

mortgage loan originators. These estimated PD models are used to simulate default associated with the

severely adverse scenario for each loan reported by

each BHC. Loans that are 180 days or more past due

as of September 30, 2012, are considered in default

and are assigned a PD of 100 percent.

The LGD for residential mortgages is estimated using

two models. One model estimates the amount of time

that elapses between default and real estate owned

(REO) disposition (timeline model), while the other

relates characteristics of the defaulted loan, such as

30 The corporate loan category also includes loans that are dissimilar from typical corporate loans, such as securities lending

and farmland loans, which are generally a small share of BHC

portfolios. For these loans, a conservative and uniform loss rate

based on analysis of historical data was assigned.

31 To predict losses on new originations over the planning horizon,

newly originated loans are assumed to have the same risk characteristics as the existing portfolio, with the exception of the

loan age, LTV, and delinquency status.

32 The effects of loan modification and evolving modification

practices are captured in the probability that a delinquent loan

transitions back to current status (re-performing loans).

March 2013 39
the property value at default, to one component of

losses net of recoveries—the proceeds from the sale

of the property net of foreclosure expenses (loss

model).33 These net proceeds are calculated from historical data on loan balances, servicer advances, and

losses from defaulted loans in private-label mortgagebacked securities (RMBS). These RMBS data are

also used to estimate the LGD loss model separately

for prime jumbo loans, subprime, and alt-A loans.34

Finally, using the elapsed time between default and

REO disposition estimated in the timeline model,

total estimated losses are allocated into credit losses

on the defaulted loans, which are fully written down

at the time of default, or net losses arising from the

eventual sale of the underlying property (other real

estate owned—or OREO—expenses), which flow

through PPNR. House price changes from the time

of default to foreclosure completion (REO acquisition) are captured in LGD, while house price changes

after foreclosure completion and before sale of the

property are captured in OREO expenses. The LGD

for loans already in default as of September 30, 2012,

includes further home price declines through the

point of foreclosure.

Home equity loans (HELs) are junior-lien, closedend loans, and home equity lines of credit (HELOCs)

are revolving open-end loans extended under lines of

credit, both secured by one- to four-family residential

real estate as defined by the FR Y-9C. Losses stemming from default on HELs and HELOCs are projected at the loan level in an expected loss framework

that is similar to first-lien mortgages, with a few differences. In the PD model for HELs and HELOCs,

the delinquency state is defined as ever delinquent, to

simplify the competing risk-model structure. The

model also assumes that second-lien HELs and

HELOCs that are current as of September 30, 2012,

but are behind a seriously delinquent first-lien will all

default within the planning horizon. The LGD for

HEL and HELOCs is estimated using data from

private-label mortgage-backed securities, using the

same models used for closed-end first-lien, but the

estimated total mortgage losses for properties with a

defaulted HEL or HELOC are allocated based on the

lien position. Finally, for HELOCs, EAD is conservatively assumed to equal the credit limit.

Retail Lending: Credit Cards

Credit cards include both general purpose and

private-label credit cards, as well as charge cards, as

defined by the FR Y-9C. Credit card loans extended

to individuals are included in retail credit cards, while

credit cards loans extended to businesses and corporations are included in other retail lending and are

modeled separately. Losses stemming from defaults

on credit cards are projected at the loan level using

an expected-loss modeling framework.

The PD model for credit cards estimates the probability that a loan transitions from delinquency status

to default status, given the characteristics of the

account and borrower as well as macroeconomic

variables such as unemployment. When an account

defaults, it is assumed to be closed and does not

return to current status. Credit card loans are considered in default when they are 120 days past due.

Because the relationship between the PD and its

determinants can vary with the initial status of the

account, separate transition models are estimated for

accounts that are current and active, current and

inactive accounts, and delinquent accounts. In addition, because this relationship can also vary with time

horizons, separate transition models are estimated for

short-, medium-, and long-term horizons. The historical data used to estimate this model are industrywide, loan-level data from many banks, and separate

models were estimated for bank cards and charge

cards. The PD model is used to forecast the PD for

each loan reported by each BHC in the Y-14M

report.

The LGD for credit cards is assumed to be a

fixed percentage and is calculated separately for bank

cards and charge cards based on historical industry

data on LGD during the most recent economic

downturn. The EAD for credit cards equals the sum

of the amount outstanding on the account and a

portion of the credit line, which reflects the amount

that is likely to be drawn down by the borrower

between the beginning of the planning horizon and

the time of default. This drawdown amount is estimated as a function of account and borrower characteristics. Because this relationship can vary with the

initial status of the account and time to default, separate models are estimated for current and delinquent

33 Other components of losses net of recoveries are calculated

directly from available data. Private mortgage insurance is not

incorporated into the LGD models. Industry data suggest that

insurance coverage on portfolio loans is infrequent and cancellation or nullification of guarantees was a common occurrence

during the recent downturn.

34 The differences between characteristics of mortgages in RMBS

and mortgages in bank portfolios, such as loan-to-value ratio

(LTV), are controlled for by including various risk characteristics in the LGD model, such as original LTV ratio, credit score,

and credit quality segment (prime, alt-A, and subprime).

40 DFAST 2013: Methodology and Results
accounts and for accounts with short-, medium-, and

long-term transition to default. For accounts that are

current, separate models were also estimated for different credit-line-size segments.

Retail Lending: Auto

Auto loans are consumer loans extended for the purpose of purchasing new and used automobiles and

light motor vehicles as defined by the FR Y-9C.

Losses stemming from default in auto retail loan

portfolios are projected at the portfolio segment level

using an expected loss framework.

The PD model for auto loans estimates the probability that a loan transitions from either a current or

delinquent status to default status, given the characteristics of the loan and borrower as well as macroeconomic variables such as house prices and the

unemployment rate (which, in some cases, are interacted with loan and borrower characteristics to allow

for greater sensitivity to stressful conditions in highrisk segments). Default on auto loans is defined

based on either the payment status (120 days past

due), actions of the borrower (bankruptcy), or the

lender (repossession). Because the relationship

between the PD and its determinants can vary with

the initial status of the account, separate transition

models are estimated for accounts that are current

and delinquent accounts. The historical data used to

estimate this model are loan-level, credit bureau data.

The LGD for auto loans is estimated given the characteristics of the loan as well as macroeconomic variables. The historical data used to estimate this model

are pooled, segment-level data provided by the BHCs

on the FR Y-14Q. The EAD for auto loans is based

on the typical pattern of amortization of loans that

ultimately defaulted in historical credit bureau data.

The estimated EAD model captures the average

amortization by loan age for current and delinquent

loans over nine quarters.

Retail Lending: Other Retail Lending

Other retail lending includes the small business loan

portfolio, the other consumer loan portfolio, the student loan portfolio, the business and corporate credit

card portfolio, and international retail portfolio.

Losses due to default on other retail lending are forecast by modeling net charge-off rates as a function of

portfolio risk characteristics and macroeconomic

variables, then using this model to predict future

charge-offs consistent with the macroeconomic variables provided in the severely adverse scenario.35 The

predicted net charge-off rate is applied to balance

projections provided by the BHCs to estimate projected losses. Default is defined as 90 days or more

past due for domestic and international other consumer loans and 120 days or more past due for student loans, small business loans, corporate cards, and

international retail portfolios. The net charge-off rate

is modeled in a system of equations that also includes

the delinquency rate and the default rate. In general,

each rate is modeled in an autoregressive specification that also includes the rate in the previous delinquency state, characteristics of the underlying loans,

macroeconomic variables and, in some cases, seasonal factors. The models are specified to implicitly

capture roll-rate dynamics. In some cases, the characteristics of the underlying loans, such as dummy variables for each segment of credit score at origination,

are also interacted with the macroeconomic variables

to capture differences in sensitivities across risk segments to changes in the macroeconomic environment. Each retail product type is modeled separately

and, for each product type, economic theory and the

institutional characteristics of the product guide the

inclusion and lag structure of the macroeconomic

variables in the model.

Because of data limitations and the relatively small

size of these portfolios, the net charge-off rate for

each loan type is modeled using industrywide, monthly data at the segment level. For most

portfolios, these data are collected on the FR Y-14Q

Retail schedule, which segments each portfolio by

characteristics such as borrower credit score; loan

vintage; type of facility (e.g., installment versus

revolving); and, for international portfolios, geographic region.36

Charge-off rates are projected by applying the estimated system of equations to each segment of the

BHC’s loan portfolio as of September 30, 2012. The

portfolio level charge-off rate equals the dollarweighted average of the segment-level charge-off

rates.37 These projected charge-off rates are applied

35 An exception is made for the government-guaranteed portion of

BHCs’ student loan portfolios, to which an assumed monthly

PD of 1.5 percent and LGD of 3 percent is applied.

36 Business and corporate credit card portfolio data, which previously were collected on the FR Y-14Q Retail schedule, are now

collected at the loan-level on the FR Y-14M Credit Card schedule and subsequently aggregated to the segment level.

37 The dollar weights used are based on the distribution reported

during the last observation period. This method assumes that

the distribution of loans across risk segments, other than delinMarch 2013 41
to the balance projections supplied by the BHC to

calculate portfolio losses.

Loan-Loss Provisions for the

Accrual Loan Portfolio

Losses on the accrual loan portfolio flow into net

income through provisions for loan and lease losses.

Provisions for loan and lease losses equal projected

loan losses for the quarter plus the amount needed

for the ALLL to be at an appropriate level at the end

of the quarter, which is a function of projected future

loan losses. The appropriate level of ALLL at the end

of a given quarter is generally assumed to be the

amount needed to cover projected loan losses over

the next four quarters.38 Because this calculation of

ALLL is based on projected losses under the severely

adverse scenario, it may differ from a BHC’s actual

level of ALLL at the beginning of the planning horizon, which is based on the BHC’s assessment of

future losses in the current economic environment.

Any difference between these two measures of ALLL

is smoothed into the provisions projection over the

nine quarters of the planning horizon. Because projected loan losses include off-balance sheet commitments, the BHC’s allowance at the beginning of the

planning horizon for credit losses on off-balance

sheet exposures (as reported on the FR Y-9C) is subtracted from the provisions projection in equal

amounts each quarter.

Other Losses

Loans Held for Sale or Measured under

the Fair-Value Option

Certain loans are not accounted for on an accrual

basis. Loans to which the fair-value option (FVO) is

applied are valued as mark-to-market assets; loans

under the held-for-sale (HFS) and some loans under

the held-for-investment (HFI) accounting classifications are carried at the lower of cost or market value.

FVO, HFS, and HFI loan portfolios are identified by

the BHCs and reported on the FR Y-14. Losses

related to FVO, HFS, and HFI loans are recognized

in the income statement at the time of the

devaluation.

For the six BHCs subject to the global market shock,

changes in the value of these loans are calculated

using the price shocks applied to similar loans in

other mark-to-market positions on the BHCs’ balance sheets (e.g., trading account positions). For the

remaining BHCs, losses on FVO, HFS, and HFI

loans are not projected separately, and any gains or

losses on these loans are captured in PPNR as part of

non-interest income. The PPNR model is described

later in this paper (see page 46).

For the six BHCs subject to the global market shock,

losses on C&I loans held under FVO, HFS, and HFI

accounting standards are estimated by applying

the percent change in the secondary market prices for

corporate loans during the second half of 2008 to

current outstanding and committed loan balances.

The loss rates applied to C&I loans vary with the

credit rating reported by the BHCs and with the

amount funded. Loss rates for investment-grade

loans with more than half of their credit line used are

based on historical price changes for investment

grade loans, while loss rates for investment-grade

loans with less than half of their credit line used are

based on changes in CDS spreads. Loss rates for all

non-investment grade loan facilities, regardless of

the percent funded, are based on price changes for

loans with the same credit rating.

Losses on CRE and retail loans held under FVO,

HFS, and HFI accounting standards are estimated in

a similar way. The loss rate applied to these loans are

taken from the global market shock and vary by

major type of loan (e.g., residential mortgages, student loans, credit cards, and the major categories of

CRE loans) and by loan vintage (year of origination). Losses on all major residential and other retail

asset types (including student loans and credit cards)

are estimated applying a percent change in value

based on the loan type and vintage to the carrying

value of FVO and HFS exposures provided by the

firms. Because retail FVO and HFS loans are generally of relatively high credit quality, the changes in

value are based on the global market shock for AAArated positions in the non-agency residential whole

loans, credit card asset-backed securities (ABS), auto

ABS, and student loan ABS portfolios. No losses are

assumed for residential mortgage loans under forward contract with the government-sponsored enterprises (GSEs).

quency status segments, remains constant over the projection

period.

38 For loan types modeled in a charge-off framework, the appropriate level of ALLL was adjusted to reflect the difference in

timing between the recognition of expected losses and that of

charge-offs.

42 DFAST 2013: Methodology and Results
Securities in the Available-for-Sale and

Held-to-Maturity Portfolios

Losses on securities held in the available-for-sale

(AFS) or held-to-maturity (HTM) portfolios are projected other-than-temporary impairment (OTTI)

over the planning horizon. OTTI projections incorporate other-than-temporary differences between

amortized cost and fair market value due to credit

impairment, but not differences reflecting changes in

liquidity or market conditions.

Some of the AFS/HTM securities, including U.S.

Treasury and U.S. government agency obligations

and U.S. government agency mortgage-backed securities (MBS), are assumed not to be at risk for the

kind of credit impairment that results in OTTI

charges. The remaining securities can be grouped into

two basic categories: securitizations, where the value

of the security depends on the value of an underlying

pool of collateral, and direct obligations such as corporate or sovereign bonds, where the value of the

security depends primarily on the credit quality of

the issuer.39

In all, 10 separate models are used to project OTTI,

reflecting differences in the basic structure of the

securities (securitized versus direct obligation) and

differences in underlying collateral and obligor type.

Overall, the OTTI projections involve CUSIP-level

analysis of more than 70,000 individual positions at

the 18 BHCs.

For securitized obligations, credit and prepayment

models estimate delinquency, default, severity, and

prepayment vectors on the underlying pool of collateral under the supervisory scenarios. In most cases,

these projections incorporate relatively detailed information on the underlying collateral characteristics for

each individual security, derived from commercial

databases that contain loan-level collateral and security structure information. Delinquency, default,

severity, and prepayment vectors are projected either

using econometric models developed by the Federal

Reserve or third-party models designed to project

these estimates in stressed economic environments.

The models used vary with the type of underlying

collateral, but generally estimate the relationship

between the collateral’s performance vectors and economic variables, such as the unemployment rate and

house prices. These vectors are then applied to a cash

flow engine that captures the specific structure of

each security (e.g., tranche, subordination, and payment rules) to calculate the intrinsic value (present

value of the cash flows) for that security. If the projected intrinsic value is less than the value at which

the security is being carried on the BHC’s balance

sheet (amortized cost), then the security is considered

to be other than temporarily impaired, and OTTI is

calculated as the difference between amortized cost

and intrinsic value.

For direct obligations, the basic approach is to assess

the PD or severe credit deterioration for each security

issuer or group of security issuers over the planning

horizon. PD is either modeled directly or inferred by

modeling changes in expected default frequencies or

credit default swap (CDS) spreads for the bonds in

question. A security is considered other than temporarily impaired if the projected value of the PD or

CDS spread crossed a predetermined threshold

level—generally the level consistent with a CCC/Caa

rating—at any point during the planning horizon.

LGD on these securities is based on historical data

on bond recovery rates. OTTI is calculated as the difference between the bond’s amortized cost and its

projected value under the supervisory scenarios.

No OTTI charges are assigned to securities acquired

by the BHCs after September 30, 2012, (“incremental

balances”) because these are assumed to be purchased at already discounted prices. This assumption

is also consistent with historical data showing that

the composition of the AFS and HTM portfolios

tends to shift toward U.S. Treasury and agency obligations in times of economic stress, suggesting that

incremental AFS/HTM balances are less likely to be

at risk of generating OTTI charges.

Trading and Counterparty Credit Risk

Total potential mark-to-market losses stemming from

trading positions under a stressed market environment can be broken into two primary types. The first

type of loss arises from a decrease in the market

value of trading positions, regardless of the BHC’s

counterparties. The second type is the counterparty

credit risk associated with changes in counterparty

exposures and with deterioration of counterparties’

creditworthiness under stressed market conditions,

which adversely affects the riskiness of positively valued trading positions. The models used to project

losses on trading positions under the global market

shock account for both sources of potential losses,

39 Equities are also held in the AFS portfolios, although in small

amounts. Losses on these positions are calculated by applying

market value shocks based on the equity price changes in the

supervisory scenarios.

March 2013 43
incorporate the accounting treatment of these positions, and generally rely on information provided by

firms on estimated sensitivities of their exposures to

specific risk factor shocks. Because positions in the

trading account are mark-to-market on a daily basis,

the approach used to generate loss projections on

trading positions is intended to capture the marketvalue effect of the global market shock.

Losses on trading positions, such as equities, FX,

interest rates, commodities, credit products, private

equity, and other fair-value assets, arising from the

global market shock are calculated using the BHCs’

own estimates of the sensitivity of the value of these

positions to changes in a wide range of market rates,

prices, spreads, and volatilities. Trading losses are calculated by multiplying these sensitivities by the risk

factor changes included in the global market shock

developed by the Federal Reserve. These shocks are

assumed to be instantaneous and no additional hedging, recovery in value, or changes in positions are

incorporated into the loss calculation.

Counterparty credit losses capture the effect of the

global market shock on counterparty exposures and

on credit valuation adjustments (CVA) and incremental default risk (IDR) of the six BHCs with large

trading positions. CVAs are adjustments above and

beyond the mark-to-market valuation of the BHCs’

trading portfolios that capture changes in the risk

that a counterparty to derivatives transaction or

other trading position will default on its obligations.

Using detailed data provided by the six trading

BHCs on the FR Y-14A Counterparty schedule, each

trading firm’s baseline and stressed CVA for each

counterparty or ratings band is calculated as a function of unstressed and stressed values of exposure,

PD, and LGD. CVA losses equal the difference

between the baseline and the stressed CVAs.

In addition to CVA and mark-to-market losses on

trading positions, default risk in the trading book is

captured through incremental default risk (IDR).

IDR estimates the potential additional loss stemming

from the default of individual counterparties in

excess of the CVA-related losses associated with the

defaulting counterparties or obligors. IDR complements CVA in the stress tests by estimating the losses

from jump-to-default in the tail of the distribution of

defaults, where the tail percentile is calibrated using

the corporate bond spread in the severely adverse

scenario.

The IDR models estimate losses from jump-todefault for various exposure types, including singlename, index and index-tranche, securitizations, and

counterparty credit, at different levels of granularity

depending on exposure type. The loss estimates are

based on simulation models of obligor-level defaults.

The IDR loss models rely on position and exposure

data provided by the firms. IDR losses occur over

nine-quarters. For IDR on collateralized counterparty credit positions, the projections assume a margin period of risk after the initial market shock during which no collateral is received in response to margin calls, and default risk is elevated to reflect the

funding stress from collateral calls.

Losses on trading and counterparty positions as a

result of a global market shock were estimated only

for the six BHCs with large trading operations since

trading operations determine risk and performance

to a larger extent at these firms than at any other

BHCs participating in DFAST 2013. In addition, the

Federal Reserve’s projections of PPNR for all 18

BHCs incorporate the effect of the supervisory scenarios on the revenues generated by day-to-day trading activities, such as market-making for customers

and clients.

Losses Related to Operational-Risk Events

Losses related to operational-risk events are a component of PPNR and include losses stemming from

events such as fraud, employee lawsuits, or computer

system or other operating disruptions. Operationalrisk loss estimates are an average of losses estimated

using three approaches: a panel regression model, a

loss distribution approach (LDA), and a historical

simulation approach. In all three models, projections

of operational-risk-related losses for the 18 BHCs are

modeled for each of seven operational-risk categories

identified in the Federal Reserve’s advanced

approaches rule.40 All three models are based on historical operational-loss data submitted by the BHCs

on the FR Y-14Q.

In the panel regression model, projections of losses

related to operational-risk events are the product of

40 The seven operational-loss event type categories identified in the

Federal Reserve’s advanced approaches rule are internal fraud;

external fraud; employment practices and workplace safety; clients, products, and business practices; damage to physical

assets; business disruption and system failures; and execution,

delivery, and process management. See 12 CFR part 225,

appendix G, section 2.

44 DFAST 2013: Methodology and Results
two primary components: loss frequency and loss

severity. The expected loss frequency is the estimated

number of operational-loss events in the severely

adverse scenario, while loss severity is the estimated

loss per event in each category. Loss frequency is

modeled as a function of macroeconomic variables

and BHC-specific characteristics. The model is estimated using FR Y-14Q data on operational-loss

events as reported by BHCs. Macroeconomic variables, such as the real GDP growth rate, stock market

return and volatility, credit spread, and the unemployment rate, are included directly in the panel

regression model and/or used to project certain firmspecific characteristics. Loss is projected as a product

of projected loss frequency from the panel regression

model and loss severity, which equals the historical

dollar loss per event in each operational-risk category. Total losses related to operational-risk events

equal losses summed across operational-risk categories. Because the relationship between the frequency

of operational-risk events and macroeconomic conditions varies across the categories, separate models

were estimated for each category.41

In the LDA model, expected losses related to

operational-risk conditional on the macroeconomic

scenarios are proxied by the losses at different percentiles of simulated, annualized loss distributions.

The loss frequency is assumed to follow a Poisson

distribution, in which the estimated intensity parameter of the Poisson distribution is specific to each

event type and BHC. A loss severity distribution is

also fit to each event type for each BHC.42 The distribution of aggregate annual losses is simulated, and

the macroeconomic scenario is implicitly incorporated in the results through the percentile choice,

which was based on analysis of historical loss data

for all BHCs taken together. The approach used to

choose the percentile for each scenario essentially targets the total loss forecast for all BHCs and allows

the LDA approach to split this loss among the individual BHCs and event types. Loss forecasts for an

individual BHC are the sum of the BHCs’ loss estimates for each event type.

In the third approach—the historical simulation

approach—the distribution of aggregate annual

losses are simulated by repeatedly drawing the annual

event frequency from the same distribution used in

the LDA, but the severity of those events was drawn

from historical realized loss data rather than an estimated loss severity distribution. Losses from the

same percentile of the distribution as in the LDA are

used to approximate the severely adverse scenario.

Mortgage Repurchase Losses

Mortgage repurchase expenses are a component of

PPNR and are related to litigation, or to demands by

mortgage investors to repurchase loans deemed to

have breached representations and warranties, or to

loans insured by the U.S. government for which coverage could be denied if loan defects are identified.

Mortgage repurchase losses for loans sold with representations and warranties liability are estimated in

two parts. The first part is to estimate credit losses

for all loans sold by a BHC that have outstanding

representations and warranties liability, including

loans sold as whole loans, into private-label securities

(PLS) or to a GSE (Fannie Mae and Freddie Mac) or

loans insured by the government. This part takes into

account both losses recognized to date and future

losses projected over the remaining lifetime of the

loans. The second part is to estimate the share of this

credit loss that may be ultimately put back to the selling BHC (whether through contractual repurchase, a

settlement agreement, or litigation loss).

Future credit loss rates for mortgages (e.g., grouped

by vintage and investor type) are projected using

industry-wide data and models that incorporate the

house price assumptions in the severely adverse scenario.43 These industry-wide credit loss rates for the

GSEs are first adjusted to reflect the relative credit

performance of loans sold by each BHC and then are

applied to the outstanding balances of the corresponding groups of loans reported by each BHC.

These estimates are based on data provided by the

BHCs, which are collected on the FR Y-14A and

include vintage-level data on original and current

unpaid balances, current delinquency status, and

losses recognized to date, among other measures.

Losses recognized to date on mortgages sold into

41 Operational-risk losses due to damage to physical assets, and

business disruption and system failure are not expected to be

dependent on the macroeconomic environment, and therefore

were set equal to each BHC’s average annual operational-risk

loss in that category. External fraud was modeled using each

BHC’s average quarterly losses during the period from the

beginning of the financial crisis in the third quarter of 2007

through the end of the recession in the fourth quarter of 2009.

42 Multiple candidate specifications for the distribution were fit to

the data, and the final specification was chosen based on a number of criteria, including a measure of goodness-of-fit.

43 The data used to model credit losses for government-insured

loans and loans sold to GSEs were loans randomly selected

from an industry database. The data used to model credit losses

for loans sold into private-label securities and as whole loans

were loans in proxy deals chosen based on the dealer, issuer, and

originator information contained in the database.

March 2013 45
private-label securities (PLS) and as whole loans are

estimated by applying historical credit loss rates by

vintage to the unpaid principal balance of the run-off

portfolio.

The share of past and future credit losses likely to be

ultimately put back to the selling BHCs (the “putback rate”) is estimated separately for each investor

type and considers both investor behavior to date

and the procedural mechanics of pursuing repurchase claims. For whole loans and loans sold into

PLS, the estimated put-back rate is based on information from recent settlement activities in the banking industry and incorporates adjustments for supervisory assessments of BHC-specific put-back risk.

For government-insured loans, the estimated putback rate is also based on information from recent

settlement activities. Finally, for loans sold to Fannie

Mae and Freddie Mac, the estimated put-back rate is

based on historical information on the repurchases of

loans sold to Fannie Mae or Freddie Mac, with consideration given to the relative seasoning of each vintage and the time interval between default and

demand.

The initial estimate of mortgage repurchase losses

equals the estimated put-back rate applied to the corresponding credit losses for all loans sold by a BHC

that have outstanding representations and warranties

liability. This initial estimate is adjusted to account

for various other factors.

First, because this methodology does not distinguish

between originated loans and purchased loans, repurchase losses stemming from PLS are adjusted to

avoid double-counting of put-back exposure related

to whole loans sold to another CCAR BHC and are

subsequently included in a PLS deal. Second, prior to

incorporating estimated mortgage repurchase losses

into a BHC’s PPNR, estimated losses are reduced by

the BHC’s reported starting period amount of

reserves for put-back losses.44 Finally, the projection

assumes that a majority—but not all—of the mortgage repurchase losses projected using these techniques are realized over the planning horizon, with

the losses divided equally across quarters and incorporated into the PPNR projections. This assumption

attempts to balance the recognition that the resolution of repurchase issues could be a lengthy process

against the desire to ensure that the severely adverse

scenario projections incorporate a conservative

assessment of the losses to which the BHCs could be

exposed over the planning horizon.

Pre-Provision Net Revenue

PPNR is forecast using a series of autoregressive

models that relate the components of a BHC’s revenues and non-credit-related expenses, expressed as a

share of relevant asset or liability balances, to BHC

characteristics, and to macroeconomic variables.

These models are estimated using historical, mergeradjusted, panel data from the FR Y-9C. Separate

models are estimated for 17 different components of

PPNR, including five components of interest income,

three components of interest expense, five components of noninterest non-trading income, three components of non-interest expenses, and trading revenue. When choosing the level of detail at which to

model the components of PPNR, consideration is

given both to the BHCs’ business models and the

ability to accurately model small components of revenue. Movements in PPNR stemming from

operational-risk events, mortgage repurchases, or

OREO, are modeled in separate frameworks,

described earlier in this document. The PPNR model

estimates and projections are adjusted where appropriate to avoid double-counting movements associated with these items.

The model specification varies somewhat by PPNR

component. But in general, each component is

related to characteristics of the BHCs, including, in

some cases, total assets, asset composition, funding

sources, and liabilities. In some PPNR components,

these measures of BHC portfolio and business activity do not adequately capture the significant variation across BHCs, so BHC-specific controls are

included in the models for these components. Macroeconomic variables used to project PPNR include

yields on Treasury securities, corporate bond yields,

mortgage rates, real GDP, and stock market price

movements and volatility. The specific macroeconomic variables differ across equations based on statistical predictive power and economic interpretation.

Because forecasts of PPNR from trading activities

are intended to include the effect of the relevant macroeconomic variables and to exclude the effect of the

global market shock, net trading revenue is modeled

44 These netted expenses include repurchase reserves as of the

third quarter of 2012 and litigation reserves as of the third

quarter of 2012 that the BHC identified as being held specifically for put-back issues.

46 DFAST 2013: Methodology and Results
using a median regression approach to effectively

lessen the influence of extreme movements in trading

revenue associated with the recent financial crisis.

Equity Capital and

Regulatory Capital

The final modeling step translates the projections of

revenues, expenses, losses, and provisions from the

models described above into estimates of equity and

regulatory capital for each BHC under the severely

adverse scenario. The projected components of pretax net income are summed, and a consistent tax rate

across all BHCs is applied to calculate after-tax net

income over the projection period. Projected aftertax net income, combined with the capital action

assumptions prescribed in the Dodd-Frank Act stress

test rules, are used to project quarter-by-quarter

changes in equity capital.45

The change in equity capital equals projected aftertax net income minus capital distributions (dividends

and any other actions that disperse equity), plus any

employee compensation-related issuance or other

corporate actions that increase equity, plus other

comprehensive income and other equity adjustments

that are consistent with the Dodd-Frank Act stress

test rules.

Projected changes in equity capital in turn determine

changes in regulatory capital measures. These regulatory capital measures are consistent with current U.S.

regulatory capital rules that limit or eliminate the recognition of certain intangible assets and unrealized

gains and losses in tier 1 capital. For example, consistent with regulatory capital rules, only a limited

amount of deferred tax assets is allowable in projected regulatory capital. Regulatory capital measures

do not include unrealized gains and losses, but incorporate the cumulative effect of some other comprehensive income items, as projected by the BHCs, and

apply the limits specified in the current U.S. regulatory capital rules.46

Regulatory capital projections were not adjusted to

account for any differences between projected and

actual performance of the BHCs during the time the

supervisory stress test results were being produced in

the fourth quarter of 2012 and the first quarter of

2013.

Capital ratios are calculated using average total assets

and risk-weighted assets based on projections made

by the BHCs under the severely adverse scenario.

BHCs were required to project market risk-weighted

assets over the planning horizon based on the

market-risk capital rules that came into effect on

January 1, 2013, for purposes of identifying positions

subject to the market-risk rule and projecting the

RWA amount of these positions.47 The BHCprovided projections were adjusted to account for

differences between BHC and Federal Reserve projections of certain balance sheet items, such as the

ALLL, servicing assets, and deferred tax assets.

45 The Federal Reserve used the following capital action assumptions in projecting post-stress capital levels and ratios: (1) for the

fourth quarter of 2012, each company’s actual capital actions as

of the end of that quarter; (2) for each quarter from the first

quarter of 2013 through the end of 2014, each company’s projections of capital included: (i) common stock dividends equal

to the quarterly average dollar amount of common stock dividends that the company paid in the previous year (that is, from

first through the fourth quarter of 2012); (ii) payments on any

other instrument that is eligible for inclusion in the numerator

of a regulatory capital ratio equal to the stated dividend, interest, or principal due on such instrument during the quarter; and

(iii) an assumption of no redemption, repurchase, or issuance of

any capital instrument that is eligible for inclusion in the

numerator of a regulatory capital ratio, except for common

stock issuances associated with expensed employee compensation. These assumptions are consistent with the capital action

assumptions companies are required to use in their Dodd-Frank

Act company-run stress tests. See 12 CFR 252.146(b)(2).

46 See generally 12 CFR part 225, appendix A.

47 See 12 CFR part 225, appendix E

March 2013 47

Appendix C: BHC-Specific Results

Tables begin on next page.

49
Table C.1. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Ally Financial Inc.

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 7.3 1.5 1.5

Tier 1 capital ratio (%) 13.6 11.0 11.0

Total risk-based capital ratio (%) 14.6 12.6 12.6

Tier 1 leverage ratio (%) 11.3 9.4 9.4

Note: The post-stress capital ratios presented in the table are based on an assumption that Ally remains subject to contingent liabilities associated with Residential Capital, LLC

(“ResCap”). On May 14, 2012, ResCap and certain of its subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the

Southern District of New York. As of March 6, 2013, the outcome of the ResCap bankruptcy remained pending.

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue2-3.7 -2.8

Other revenue3

0.3

less

Provisions 5.1

Realized losses/gains on securities (AFS/HTM) 0.7

Trading and counterparty losses4

0.0

Other losses/gains5

0.0

equals

Net income before taxes -9.3 -7.1

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

4.5 5.2

First-lien mortgages, domestic 0.3 6.0

Junior liens and HELOCs, domestic 0.2 9.3

Commercial and industrial 1.4 5.2

Commercial real estate, domestic 0.1 6.5

Credit cards 0.0 0.0

Other consumer 2.4 4.9

Other loans 0.0 1.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

50 DFAST 2013: Methodology and Results
Table C.2. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

American Express Company

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 12.7 11.3 11.1

Tier 1 capital ratio (%) 12.7 11.3 11.1

Total risk-based capital ratio (%) 14.7 13.4 13.2

Tier 1 leverage ratio (%) 10.7 9.5 8.9

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue215.4 11.0

Other revenue30.0

less

Provisions 14.2

Realized losses/gains on securities (AFS/HTM) 0.0

Trading and counterparty losses4

0.0

Other losses/gains5

0.4

equals

Net income before taxes 0.8 0.6

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

10.7 11.2

First-lien mortgages, domestic 0.0 0.0

Junior liens and HELOCs, domestic 0.0 0.0

Commercial and industrial 2.6 9.4

Commercial real estate, domestic 0.0 0.0

Credit cards 8.0 12.0

Other consumer 0.0 0.0

Other loans 0.0 4.5

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 51
Table C.3. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Bank of America Corporation

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 11.4 6.9 6.8

Tier 1 capital ratio (%) 13.6 8.5 8.5

Total risk-based capital ratio (%) 17.2 11.6 11.6

Tier 1 leverage ratio (%) 7.8 5.4 5.4

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue224.1 1.3

Other revenue31.0

less

Provisions 49.7

Realized losses/gains on securities (AFS/HTM) 0.5

Trading and counterparty losses4

14.1

Other losses/gains5

12.5

equals

Net income before taxes -51.8 -2.7

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

57.5 6.9

First-lien mortgages, domestic 15.3 5.9

Junior liens and HELOCs, domestic 9.4 10.0

Commercial and industrial 8.5 5.1

Commercial real estate, domestic 4.7 8.6

Credit cards 15.3 16.2

Other consumer 3.0 4.3

Other loans 1.3 1.3

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

52 DFAST 2013: Methodology and Results
Table C.4. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

The Bank of New York Mellon Corporation

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 13.3 15.9 13.2

Tier 1 capital ratio (%) 15.3 17.1 14.8

Total risk-based capital ratio (%) 16.9 17.9 16.0

Tier 1 leverage ratio (%) 5.6 5.9 5.1

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue26.8 2.1

Other revenue30.0

less

Provisions 1.1

Realized losses/gains on securities (AFS/HTM) 0.2

Trading and counterparty losses4

0.0

Other losses/gains5

0.0

equals

Net income before taxes 5.5 1.6

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

1.2 2.7

First-lien mortgages, domestic 0.4 6.7

Junior liens and HELOCs, domestic 0.0 12.8

Commercial and industrial 0.1 3.5

Commercial real estate, domestic 0.1 7.7

Credit cards 0.0 0.0

Other consumer 0.0 0.5

Other loans 0.5 1.7

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 53
Table C.5. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

BB&T Corporation

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 9.5 9.4 9.4

Tier 1 capital ratio (%) 10.9 11.2 11.2

Total risk-based capital ratio (%) 14.0 13.4 13.4

Tier 1 leverage ratio (%) 7.9 8.3 7.9

Note: The actual and post-stress capital ratios presented in the table are based on information that BB&T provided to the Federal Reserve in regulatory reports on or before

February 6, 2013. The information that BB&T provided to the Federal Reserve includes information regarding BB&T’s risk-weighted assets. On March 4, 2013, BB&T disclosed

publicly that it had reevaluated its process related to calculating risk-weighted assets and determined that certain adjustments, primarily related to the presentation of certain

unfunded lending commitments, were required in order to conform to regulatory guidance. These adjustments resulted in an increase to risk-weighted assets and a decrease in

BB&T’s risk-based capital ratios and are not reflected in this table.

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue27.1 4.1

Other revenue3

0.0

less

Provisions 6.4

Realized losses/gains on securities (AFS/HTM) 0.1

Trading and counterparty losses4

0.0

Other losses/gains5

0.1

equals

Net income before taxes 0.6 0.3

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

5.9 5.5

First-lien mortgages, domestic 0.9 2.8

Junior liens and HELOCs, domestic 0.4 6.1

Commercial and industrial 1.1 7.2

Commercial real estate, domestic 2.1 7.1

Credit cards 0.3 16.6

Other consumer 0.9 7.0

Other loans 0.3 3.0

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

54 DFAST 2013: Methodology and Results
Table C.6. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Capital One Financial Corporation

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 10.7 7.4 7.4

Tier 1 capital ratio (%) 12.7 7.8 7.8

Total risk-based capital ratio (%) 15.0 10.1 10.1

Tier 1 leverage ratio (%) 9.9 5.7 5.7

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue218.7 6.7

Other revenue30.0

less

Provisions 26.4

Realized losses/gains on securities (AFS/HTM) 0.3

Trading and counterparty losses4

0.0

Other losses/gains5

0.0

equals

Net income before taxes -8.0 -2.9

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

23.6 13.2

First-lien mortgages, domestic 1.4 3.8

Junior liens and HELOCs, domestic 0.5 21.1

Commercial and industrial 1.5 8.9

Commercial real estate, domestic 0.9 4.8

Credit cards 16.4 22.2

Other consumer 2.7 11.8

Other loans 0.1 1.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 55
Table C.7. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Citigroup Inc.

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 12.7 8.9 8.3

Tier 1 capital ratio (%) 13.9 9.8 9.3

Total risk-based capital ratio (%) 17.1 12.9 12.5

Tier 1 leverage ratio (%) 7.4 5.6 5.3

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue244.0 2.5

Other revenue30.0

less

Provisions 49.4

Realized losses/gains on securities (AFS/HTM) 4.4

Trading and counterparty losses4

15.9

Other losses/gains5

2.7

equals

Net income before taxes -28.6 -1.6

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

54.6 9.2

First-lien mortgages, domestic 8.8 9.4

Junior liens and HELOCs, domestic 4.5 13.4

Commercial and industrial 7.8 6.0

Commercial real estate, domestic 0.8 11.3

Credit cards 23.3 17.9

Other consumer 6.5 16.5

Other loans 2.9 1.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

56 DFAST 2013: Methodology and Results
Table C.8. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Fifth Third Bancorp

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 9.7 8.6 8.6

Tier 1 capital ratio (%) 10.8 9.3 9.3

Total risk-based capital ratio (%) 14.8 12.4 12.4

Tier 1 leverage ratio (%) 10.1 8.8 8.8

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue24.9 4.2

Other revenue30.0

less

Provisions 5.1

Realized losses/gains on securities (AFS/HTM) 0.1

Trading and counterparty losses4

0.0

Other losses/gains5

0.0

equals

Net income before taxes -0.3 -0.2

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

5.3 6.3

First-lien mortgages, domestic 0.7 5.4

Junior liens and HELOCs, domestic 0.9 10.4

Commercial and industrial 1.9 6.3

Commercial real estate, domestic 0.8 7.7

Credit cards 0.4 21.6

Other consumer 0.5 3.6

Other loans 0.2 2.4

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 57
Table C.9. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

The Goldman Sachs Group, Inc.

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 13.1 8.2 5.8

Tier 1 capital ratio (%) 15.0 10.8 8.4

Total risk-based capital ratio (%) 18.1 13.8 11.3

Tier 1 leverage ratio (%) 7.2 6.2 3.9

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue214.4 1.7

Other revenue30.0

less

Provisions 2.6

Realized losses/gains on securities (AFS/HTM) 0.2

Trading and counterparty losses4

24.9

Other losses/gains5

7.1

equals

Net income before taxes -20.5 -2.4

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

2.0 5.2

First-lien mortgages, domestic 0.0 7.7

Junior liens and HELOCs, domestic 0.0 9.8

Commercial and industrial 1.4 49.8

Commercial real estate, domestic 0.1 8.2

Credit cards 0.0 0.0

Other consumer 0.0 2.8

Other loans 0.6 1.6

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

58 DFAST 2013: Methodology and Results
Table C.10. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

JPMorgan Chase & Co.

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 10.4 6.8 6.3

Tier 1 capital ratio (%) 11.9 7.9 7.4

Total risk-based capital ratio (%) 14.7 10.3 9.9

Tier 1 leverage ratio (%) 7.1 4.7 4.7

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue245.0 2.0

Other revenue30.0

less

Provisions 51.3

Realized losses/gains on securities (AFS/HTM) 0.9

Trading and counterparty losses4

23.5

Other losses/gains5

1.6

equals

Net income before taxes -32.3 -1.4

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

53.9 7.7

First-lien mortgages, domestic 11.3 8.8

Junior liens and HELOCs, domestic 6.7 8.8

Commercial and industrial 11.1 8.5

Commercial real estate, domestic 5.2 7.3

Credit cards 14.8 14.4

Other consumer 2.3 3.9

Other loans 2.6 1.9

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 59
Table C.11. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

KeyCorp

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 11.3 8.0 8.0

Tier 1 capital ratio (%) 12.1 8.6 8.6

Total risk-based capital ratio (%) 15.2 11.2 11.2

Tier 1 leverage ratio (%) 11.4 8.1 8.1

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue22.5 3.0

Other revenue30.0

less

Provisions 4.3

Realized losses/gains on securities (AFS/HTM) 0.0

Trading and counterparty losses4

0.0

Other losses/gains5

0.6

equals

Net income before taxes -2.4 -2.8

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

3.9 7.3

First-lien mortgages, domestic 0.4 10.3

Junior liens and HELOCs, domestic 1.1 12.6

Commercial and industrial 1.0 5.8

Commercial real estate, domestic 0.6 7.2

Credit cards 0.1 19.1

Other consumer 0.4 8.8

Other loans 0.3 2.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

60 DFAST 2013: Methodology and Results
Table C.12. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Morgan Stanley

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 13.9 6.4 5.7

Tier 1 capital ratio (%) 16.9 8.2 7.5

Total risk-based capital ratio (%) 17.0 9.4 8.7

Tier 1 leverage ratio (%) 7.2 5.1 4.5

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue21.2 0.2

Other revenue30.0

less

Provisions 2.3

Realized losses/gains on securities (AFS/HTM) 0.0

Trading and counterparty losses4

11.7

Other losses/gains5

6.7

equals

Net income before taxes -19.4 -2.9

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

1.6 3.1

First-lien mortgages, domestic 0.1 0.6

Junior liens and HELOCs, domestic 0.0 9.5

Commercial and industrial 1.2 7.8

Commercial real estate, domestic 0.0 10.2

Credit cards 0.0 0.0

Other consumer 0.1 1.4

Other loans 0.1 0.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 61
Table C.13. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

The PNC Financial Services Group, Inc.

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 9.5 8.7 8.7

Tier 1 capital ratio (%) 11.7 10.8 10.8

Total risk-based capital ratio (%) 14.5 13.4 13.4

Tier 1 leverage ratio (%) 10.4 8.7 8.7

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue29.8 3.2

Other revenue3-0.1

less

Provisions 9.8

Realized losses/gains on securities (AFS/HTM) 0.8

Trading and counterparty losses4

0.0

Other losses/gains5

0.4

equals

Net income before taxes -1.4 -0.5

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

10.0 5.8

First-lien mortgages, domestic 1.4 6.1

Junior liens and HELOCs, domestic 1.6 6.3

Commercial and industrial 3.4 6.4

Commercial real estate, domestic 2.0 7.3

Credit cards 0.6 15.5

Other consumer 0.7 3.5

Other loans 0.3 1.6

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

62 DFAST 2013: Methodology and Results
Table C.14. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Regions Financial Corporation

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 10.5 7.5 7.5

Tier 1 capital ratio (%) 11.5 8.5 8.5

Total risk-based capital ratio (%) 15.0 11.7 11.7

Tier 1 leverage ratio (%) 9.1 6.8 6.8

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue23.1 2.6

Other revenue30.0

less

Provisions 5.2

Realized losses/gains on securities (AFS/HTM) 0.1

Trading and counterparty losses4

0.0

Other losses/gains5

0.0

equals

Net income before taxes -2.2 -1.9

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

5.4 7.6

First-lien mortgages, domestic 1.1 8.2

Junior liens and HELOCs, domestic 0.8 8.5

Commercial and industrial 1.2 6.7

Commercial real estate, domestic 1.7 9.7

Credit cards 0.2 18.0

Other consumer 0.3 6.8

Other loans 0.2 2.2

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 63
Table C.15. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

State Street Corporation

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 17.8 13.0 12.8

Tier 1 capital ratio (%) 19.8 14.5 14.4

Total risk-based capital ratio (%) 21.3 16.6 16.2

Tier 1 leverage ratio (%) 7.6 7.1 6.6

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue23.0 1.5

Other revenue30.0

less

Provisions 0.4

Realized losses/gains on securities (AFS/HTM) 0.4

Trading and counterparty losses4

0.0

Other losses/gains5

0.7

equals

Net income before taxes 1.5 0.8

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

0.3 2.0

First-lien mortgages, domestic 0.0 0.0

Junior liens and HELOCs, domestic 0.0 0.0

Commercial and industrial 0.0 0.0

Commercial real estate, domestic 0.1 18.3

Credit cards 0.0 0.0

Other consumer 0.0 0.0

Other loans 0.2 1.5

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

64 DFAST 2013: Methodology and Results
Table C.16. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

SunTrust Banks, Inc.

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 9.8 7.3 7.3

Tier 1 capital ratio (%) 10.6 8.2 8.2

Total risk-based capital ratio (%) 13.0 10.4 10.4

Tier 1 leverage ratio (%) 8.5 6.5 6.5

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue24.6 2.8

Other revenue30.0

less

Provisions 7.9

Realized losses/gains on securities (AFS/HTM) 0.0

Trading and counterparty losses4

0.0

Other losses/gains5

0.7

equals

Net income before taxes -4.1 -2.5

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

7.4 6.4

First-lien mortgages, domestic 1.7 6.5

Junior liens and HELOCs, domestic 1.7 11.4

Commercial and industrial 2.1 6.2

Commercial real estate, domestic 1.1 9.7

Credit cards 0.1 15.0

Other consumer 0.5 2.6

Other loans 0.2 2.2

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 65
Table C.17. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

U.S. Bancorp

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 9.0 8.3 8.3

Tier 1 capital ratio (%) 10.9 10.3 10.3

Total risk-based capital ratio (%) 13.3 12.3 12.3

Tier 1 leverage ratio (%) 9.2 8.7 8.7

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue221.2 6.2

Other revenue30.1

less

Provisions 17.2

Realized losses/gains on securities (AFS/HTM) 0.2

Trading and counterparty losses4

0.0

Other losses/gains5

0.3

equals

Net income before taxes 3.6 1.1

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

15.1 7.1

First-lien mortgages, domestic 1.3 2.8

Junior liens and HELOCs, domestic 1.0 6.1

Commercial and industrial 4.3 9.5

Commercial real estate, domestic 3.0 8.0

Credit cards 3.2 17.3

Other consumer 1.6 5.4

Other loans 0.7 3.8

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

66 DFAST 2013: Methodology and Results
Table C.18. Dodd-Frank Act stress testing 2013

Projected stressed capital ratios, losses, revenues, net income before taxes,

and loan losses, by type of loan

Federal Reserve estimates in the severely adverse scenario

Wells Fargo & Company

The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank Act stress testing rule. These projections represent hypothetical estimates that involve an economic outcome that is more adverse than expected. These estimates are

not forecasts of expected losses, revenues, net income before taxes, or capital ratios. The minimum capital ratio presented is for the

period Q4 2012 to Q4 2014.

Projected capital ratios through Q4 2014 under the severely adverse scenario

Actual Stressed capital ratios

Q3 2012 Q4 2014 Minimum

Tier 1 common ratio (%) 9.9 7.0 7.0

Tier 1 capital ratio (%) 11.5 8.7 8.7

Total risk-based capital ratio (%) 14.5 11.4 11.2

Tier 1 leverage ratio (%) 9.4 7.0 7.0

Projected losses, revenue, and net income before taxes

through Q4 2014 under the severely adverse scenario

Billions of

dollars

Percent of

average assets1

Pre-provision net revenue245.9 3.3

Other revenue30.0

less

Provisions 58.8

Realized losses/gains on securities (AFS/HTM) 3.9

Trading and counterparty losses4

6.9

Other losses/gains5

2.0

equals

Net income before taxes -25.7 -1.9

1

Average assets are nine-quarter average assets.

2

Pre-provision net revenue includes losses from operational-risk events,

mortgage put-back expenses, and OREO costs.

3

Other revenue includes one-time income and (expense) items not included in

pre-provision net revenue.

4

Trading and counterparty losses includes mark-to-market losses, changes in

credit valuation adjustments, and incremental default losses.

5

Other losses/gains includes projected change in fair value of loans held for sale

and loans held for investment measured under the fair-value option, and

goodwill impairment losses.

Projected loan losses, by type of loan, for Q4 2012–Q4 2014

under the severely adverse scenario

Billions of

dollars

Portfolio loss

rates (%)

Loan losses1

53.8 7.1

First-lien mortgages, domestic 15.3 7.1

Junior liens and HELOCs, domestic 8.4 9.3

Commercial and industrial 9.9 6.6

Commercial real estate, domestic 9.6 8.6

Credit cards 4.4 17.7

Other consumer 5.0 5.9

Other loans 1.2 1.6

1

Commercial and industrial loans include small and medium enterprise loans

and corporate cards. Other loans include international real estate loans.

Average loan balances used to calculate portfolio loss rates exclude loans held

for sale and loans held for investment under the fair-value option, and are

calculated over nine quarters.

March 2013 67
0313

www.federalreserve.gov