Supervisory Capital Assessment Program – SCAP Definition

The Supervisory Capital Assessment Program (SCAP) was a financial stress test conducted by the Federal Reserve System. The test was a one-time assessment of the capital buffers of U.S. banking institutions. The SCAP took place in the spring of 2009 during the financial crisis of 2008-2009. It intended to measure the financial strength of the nation's 19 largest financial institutions moving forward. The financial crisis at that time left many banks and institutions severely undercapitalized and the stress tests were intended to show how well the banking sector could withstand the impact of a major economic downturn.

The stress tests were limited to banking organizations with assets over US$100 billion dollars. These were essentially banks which the Fed considered "too big to fail." U.S. federal banking supervisors believed that these firms should have a sufficient capital buffer to withstand losses while continuing to provide their customers with access to credit. The requirements of the stress tests measured each institution's Tier 1 common capital against a baseline scenario. Further, the chosen institutions underwent testing against a hypothetical and extreme scenario which was deemed more adverse.

Banks received grades as:

• Well-capitalized
• Adequately capitalized
• Undercapitalized
• Significantly undercapitalized
• Critically undercapitalized

The Fed released the identity of the banks which underwent the 2009 stress tests to the public. The data helped to inform how each bank would handle a significant financial crisis in the future. Banks which failed the stress tests came across poorly to the public. The tests helped to identify any possible looming threats of an economic disaster within the banking sector.

When testing was complete, the final results showed that 10 of the 19 tested banks were deemed to have inadequate capital to meet their needs during a financial downturn and crisis. However, every bank which underwent testing met the legally mandated capital requirements.

These stress tests included a set of scenarios, some worse than others, for banks to evaluate financial safety. An example is a hypothetical situation of all of the following happening at the same time: 10% unemployment rate, a general 20% drop in stocks and a 40% plunge in home prices. Under this type of simulated environment, banks would then use the next nine quarters of projected financials to determine if they had enough capital to make it through the identified crisis.