The Supervisory Capital Assessment Program

Yale Program on Financial Stability Intervention Case

18 Pages Posted: 29 Jan 2016

Date Written: January 14, 2016

Abstract

When President Obama took office in 2009, the Treasury focused on restarting bank lending and repairing the ability of the banking system as a whole to perform the role of credit intermediation. In order to do so, the Treasury needed to raise public confidence that banks had sufficient buffers to withstand even a very adverse economic scenario, especially given heightened uncertainty surrounding the outlook for the U.S. economy and potential losses in the banking system. The Supervisory Capital Assessment Program (SCAP) -- the so-called "stress test" -- sought to rigorously measure the health and resilience of the largest bank holding companies. Those found to have insufficient capital buffers were able to raise funds from the private sector, and if unable to do so, the Capital Assistance Program (CAP) would capitalize the firm with public capital. Ultimately, the SCAP test results were accepted as credible; all except one of the tested firms raised more than enough private capital in the following six months to fill the capital shortfall calculated by the SCAP and the CAP went unused.

Keywords: Stress Test, Public Capital Injection, Tier 1 Capital, Crisis Intervention, Bank Holding Company

JEL Classification: G01, G28, H12, H81

Suggested Citation

Ross, Chase, The Supervisory Capital Assessment Program (January 14, 2016). Yale Program on Financial Stability Intervention Case, Available at SSRN: https://ssrn.com/abstract=2722712 or http://dx.doi.org/10.2139/ssrn.2722712

Chase Ross (Contact Author)

Yale School of Management ( email )

165 Whitney Street
New Haven, CT 06511
United States

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