In both cases, the probability of the baseline scenario is within the 49-60% range. The adverse scenario is close to the 95th percentile (i.e. BB-rated credit spread would exceed it only 5 times out of a 100) for the first year (four quarters) of the scenario horizon. Then it recovers and approaches the average line. For the capital ratio, the severely adverse scenario remains around the 95th worst-case percentile for almost eight quarters, before starting to recover.
This happens due to the non-linear dependency of capital ratios and their underlying drivers. Even when the economy starts recovering, as happens in the severe CCAR-2021 scenario, credit losses might keep growing, thus slowing the recovery of banks’ capital ratios.
So the probability of a scenario must be considered with respect to a bank’s particular balance sheet, business model and growth objectives – and not be based on common market drivers.