Recommendation: Eastern Capital Bank should prioritize aligning stress testing assumptions with CCAR expectations, strengthen internal governance, and gradually increase its capital ratio.

Key Rationale:

• Current risk modeling underestimates key variables like equity market decline and loan losses.
• Capital ratios are compliant but below peer norms, increasing reputational and regulatory risk.
• Stronger processes and governance would reduce long-term compliance risks and improve investor confidence.

Risks & Mitigations:

• Regulatory penalties if misalignment continues:Mitigation: Prioritize model adjustments and capital planning audits immediately.
• Operational burden from process changes:Mitigation: Phase improvements over 12–18 months with dedicated project teams.
• Over-conservatism limiting growth:Mitigation: Balance capital increases with ongoing business growth plans.

Next Steps:

1. Align stress test assumptions (equity decline, loan losses) within 30–60 days.
2. Develop and approve a formal capital planning policy.
3. Initiate quarterly internal stress testing cycles.
4. Increase capital ratio targets by 0.5–1% over the next fiscal year.
5. Set up a permanent governance structure for capital planning oversight.