A Tale of Two Risk Measures: Economic Capital vs. Stress Testing and a Call f...Xiaoling (Sean) Yu Ph.D.
In this presentation that I gave in the 9th Annual Capital Allocation and Stress Testing Conference, I advocated for a coherent risk management framework that integrates Economic Capital and Stress Testing, after compared and contrasted the two.
A Tale of Two Risk Measures: Economic Capital vs. Stress Testing and a Call f...Xiaoling (Sean) Yu Ph.D.
In this presentation that I gave in the 9th Annual Capital Allocation and Stress Testing Conference, I advocated for a coherent risk management framework that integrates Economic Capital and Stress Testing, after compared and contrasted the two.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
CVA Capital Charge under Basel III standardized approachGRATeam
Since the 2007 – 2009, Counterparty Credit Risk (CCR) has become one of the biggest issues and challenges for financial institutions.
As the crisis revealed shortcomings and loopholes in managing CCR, and more specifically CVA risk, new regulations have been issued in the sole intent of capturing this risk and building an extra cushion of capital to absorb losses and consequently to strengthen the resilience of the banking industry.
Basel III framework proposes two ways for measuring CVA Risk: a standardized approach and an advanced approach.
In this paper, the standardized approach will be analyzed and studied. At first, an analysis will be provided to better understand why CCR became so important, what are its characteristics, etc... Then a discussion around the CVA definition from the regulator’s perspective will be presented. Finally, a paragraph will be dedicated to better understand what the standardized formula refers to, what is being computed, and for what purpose.
Our decision to focus on the treatment of counterparty risk in Basel III - standard method only - can be explained by three major observations:
1) A lot of literature already exists, and a certain number of very good specialists refer to the subject. We do not pretend to add other new elements, in all cases not herein;
2) Few banks actually are able to assess their counter party risk under some advanced and internal methodologies. The application of the standard method is highly widespread among financial institutions subject to Basel III;
3) Few people, when they need to assess their risk using the standard approach, really take the time to analyze choices and specific assumptions according to this method.
Our main objective here is to help financial institutions better understand how their regulatory capital levels evolve under this approach and the impact on their day to day business.
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
This presentation focuses on the principles and practicalities of establishing a working risk appetite statement supported by risk limits and tolerances.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
CVA Capital Charge under Basel III standardized approachGRATeam
Since the 2007 – 2009, Counterparty Credit Risk (CCR) has become one of the biggest issues and challenges for financial institutions.
As the crisis revealed shortcomings and loopholes in managing CCR, and more specifically CVA risk, new regulations have been issued in the sole intent of capturing this risk and building an extra cushion of capital to absorb losses and consequently to strengthen the resilience of the banking industry.
Basel III framework proposes two ways for measuring CVA Risk: a standardized approach and an advanced approach.
In this paper, the standardized approach will be analyzed and studied. At first, an analysis will be provided to better understand why CCR became so important, what are its characteristics, etc... Then a discussion around the CVA definition from the regulator’s perspective will be presented. Finally, a paragraph will be dedicated to better understand what the standardized formula refers to, what is being computed, and for what purpose.
Our decision to focus on the treatment of counterparty risk in Basel III - standard method only - can be explained by three major observations:
1) A lot of literature already exists, and a certain number of very good specialists refer to the subject. We do not pretend to add other new elements, in all cases not herein;
2) Few banks actually are able to assess their counter party risk under some advanced and internal methodologies. The application of the standard method is highly widespread among financial institutions subject to Basel III;
3) Few people, when they need to assess their risk using the standard approach, really take the time to analyze choices and specific assumptions according to this method.
Our main objective here is to help financial institutions better understand how their regulatory capital levels evolve under this approach and the impact on their day to day business.
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
This presentation focuses on the principles and practicalities of establishing a working risk appetite statement supported by risk limits and tolerances.
Establishing Effective ERM of IT: Implementation and Operational Issues of th...Robert Stroud
IT risk is receiving growing attention from executive management, risk managers and regulators to indentify and correctly manage risk in the operational environment. This pressure requires the implementation of an effective risk management process. ISACA recently delivered the RISK IT Framework to assist IT too effectively identify risk and how to develop processes to accept or mitigate risk.
When leveraged in conjunction with the COBIT® Framework which provides the generally accepted control framework, the RISK IT Framework will deliver an effective enterprise risk management solution.
This session will demonstrate how to establish effective enterprise risk management of IT including implementation and operational issues using ISACA’s new ‘Risk IT Practitioner Guide’.
Risk Appetite: new challenges to manage an insurance companyPhilippe Foulquier
Based on a survey of European insurance companies, the results call into question some of the risk appetite indicators chosen by insurers. The study shows how risk appetite is applied to all decisions in a fully objective manner and it signals the need for a profound culture change with regard to risk-return analysis. It is on this point, which lies at the heart of the competition among players in the insurance sector – evaluating the performance of allocated capital by activity, measured against the risks incurred – that a number of structural shifts, innovations and changes will have to be made
How often have you wondered, “what else can go wrong and how are all the risks interconnected?” Developing a risk governance program, a stress testing and scenario analysis program, as well as a risk appetite statement, can help you build an effective, proactive risk management strategy and enhance the risk culture of your institution.
RMA's Risk Appetite Workbook is a practical guide to understanding and developing a risk appetite statement that is appropriate for your bank. Also available are workbooks on Scenario Analysis & Stress Testing for Community Banks, and Governance & Policies.
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Risk is a result or outcome which is other than what is / was expected. It is the amount of money that an investor can afford to lose in the interim, in his quest for certain return on investments. It is a state of uncertainty. Read more to find out how to access your risk appetite.
Operational risk management and measurementRahmat Mulyana
a short description in mixed English and Bahasa Indonesia on Operational Risk Management and Measurement, in particular value at risk calculation using Monte carlo Simulation. Another method using EVT (Extree Value Theory) will be delivered shortly. regards
Changes to Basel Regulation Post 2008 CrisisIshan Jain
Subprime crisis
Basel Committee objectives and history
Pillars of Basel 2 and Basel 3
Basel 3 Capital Requirements
capital Rations
Capital Buffers
Leverage Ratios
Global Liquidity Standards
macroeconomic factors
Value at Risk
Expected Shortfall
Building a Holistic Capital Management FrameworkCognizant
For banks, capital management strategy is a complex process that must take into account a vast range of regulatory and financial factors. Adopting the holistic approach detailed here will enable banks to provide sustainable value to their clients.
I argue that much of what is proposed in the IFRS 9 document could have been accomplished through Pillar 2 of the Basel Accord in its 2006 release.
Pillar 2 was introduced to put to test Management Capabilities, and Regulatory Credibility. I argue that both failed that test which made the introduction of IFRS 9 a necessity.
“Basel III is more about improving the risk management systems in the Banks than just Improved Quality and enhanced Quantity of capital”. Please discuss the challenges to the Indian Banks by March,2017
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
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Contact with Dawood Bhai Just call on +92322-6382012 and we'll help you. We'll solve all your problems within 12 to 24 hours and with 101% guarantee and with astrology systematic. If you want to take any personal or professional advice then also you can call us on +92322-6382012 , ONLINE LOVE PROBLEM & Other all types of Daily Life Problem's.Then CALL or WHATSAPP us on +92322-6382012 and Get all these problems solutions here by Amil Baba DAWOOD BANGALI
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Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
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#vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore#blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #blackmagicforlove #blackmagicformarriage #aamilbaba #kalajadu #kalailam #taweez #wazifaexpert #jadumantar #vashikaranspecialist #astrologer #palmistry #amliyaat #taweez #manpasandshadi #horoscope #spiritual #lovelife #lovespell #marriagespell#aamilbabainpakistan #amilbabainkarachi #powerfullblackmagicspell #kalajadumantarspecialist #realamilbaba #AmilbabainPakistan #astrologerincanada #astrologerindubai #lovespellsmaster #kalajaduspecialist #lovespellsthatwork #aamilbabainlahore #Amilbabainuk #amilbabainspain #amilbabaindubai #Amilbabainnorway #amilbabainkrachi #amilbabainlahore #amilbabaingujranwalan #amilbabainislamabad
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
3. PwC
Pillar 2, Principle 1 – The ICAAP
Banks should have a process for assessing their overall capital adequacy
in relation to their risk profile and a strategy for maintaining their
capital levels”
oard and senior management oversight
ound capital assessment
• Policies and procedures … to measure … all material
risks
• Process to relate capital to level of risk
omprehensive assessment of all risks
onitoring and reporting 3
4. PwC
ICAAP Principles - CEBS
I. Every institution must have a process for assessing its capital adequacy
relative to its risk profile (an ICAAP)
II. The ICAAP is the responsibility of the institution.
III. The ICAAP’s design should be fully specified, the institution’s capital
policy should be fully documented, and the management body should take
responsibility for the ICAAP
IV. The ICAAP should form an integral part of the management process and
decision-making culture of the institution
V. The ICAAP should be reviewed regularly
VI. The ICAAP should be risk-based
VII. The ICAAP should be comprehensive
VIII. The ICAAP should be forward-looking
IX. The ICAAP should be based on adequate measurement and assessment
processes
X. The ICAAP should produce a reasonable outcome
4
5. PwC
ICAAP components
1. Description of risk governance
2. Statement of risk appetite
i. Link to risk limits
ii. Link to strategy
3. Comparison with risk-bearing capacity
4. Assessment of material risks
5. Comprehensive risk capital model (economic capital?)
6. Capital forecasts and stress tests, showing:
i. Regulatory capital
ii. Risk or economic capital
iii. Physical capital
iv. Available vs required capital
7. Capital allocation process and policies
8. Use test - embedded in business processes
5
6. PwC
Statement of risk appetite
1. Board-level document
2. Quantifies the desired level of risk that an institution is willing to
take.
3. Typically be expressed in terms of risk limits, but under an ICAAP
should also quantify those risk limits in terms of capital
4. Usually refreshed at least annually.
5. May be expressed in terms of earnings volatility (earnings
perspective), either in addition to or instead of the solvency
perspective.
6. Where an institution only uses an earnings perspective, meeting
Pillar 2 ICAAP requirements may be challenging
6
7. PwC
Statement of risk appetite - example
7
Metric Indicators
Quantitative indicators
Earnings volatility No more than 5% chance of being unable to pay our forecast dividend. (i.e. we expect to
pay our dividend in 19 out of 20 years)
Do not deliver below market consensus earnings forecast (as at the beginning of the
financial year) for the Group and each of its Divisions, by more than 20% (the consensus
market forecast for this year is PAT of £700m, but our budget envisages £750 m)
Return on equity Target return on equity is 12%
Target capital ratios Our Tier 1 capital ratio should not fall below 6% of RWAs and our total capital ratio
should not fall below 10%
Our economic capital utlisation should not exceed 85% of our available capital
Note: our EC requirement is lower than our Basel I minimum capital requirement; once
Basel II comes into force on 1 Jan 2007, we expect our regulatory capital requirements to
fall closer into line with our EC requirements
Credit rating AA- (equivalent to Probability of Default of 0.03% for one year – S&P).
AA is our target rating and our intention is to maintain it
Qualitative indicators
Unable to manage
growth effectively
Monitor indicators for early warnings of non-sustainability of growth (e.g. overconfidence
of management, process delays, system constraints)
Business activities Limit our business activities to: retail and corporate banking; expand our IB activities only
in those areas where we have proven competence; asset management.
Limit overseas expansion to China and the US
Insufficient risk is
assumed
Track rationale for rejected (and accepted) business opportunities to ensure that risk
appetite is properly reflected
Zero tolerance risks
Regulatory risk In key regimes (UK and USA), have no instance of “flagrant breaches”, fines or headlines
No breach of delegated authorities
8. PwC
Statement of risk-bearing capacity
1. Board-level document
2. Quantifies the ability of the institution to absorb risks
3. Typically expressed in terms of capital (solvency perspective) but
may also be expressed in an earnings perspective.
4. The statement of risk-bearing capacity and statement of risk
appetite are usually companion documents
8
9. PwC
In organisational terms
9
Actual Risk Profile
Target Risk Profile
Risk-bearing capacity
Risk
Appetite
The quantum of risk the
firm is willing to accept
within its overall capacity
The maximum risk the firm can
bear, which is linked to capital,
liquid assets, borrowing limits etc
Allocated risk limits
Utilisation of limits
Credit
Risk
Market
Risk
Op.s
Risk
Int. rate
Risk
Liquidity
Risk
Etc. Individual risk
measures
10. PwC
Assessment of material risks
1. Banks need to assess all material risks
2. Should be fully documented
3. Risks that are deemed not to be material still need to be documented (+
reasons)
4. Should explain how risks are:
a. Measured (where relevant)
b. Managed
c. Mitigated
5. Develop a risk map to cover all risks
6. Can be based on different approaches
a. Regulatory capital
b. Economic capital models
c. Stress tests/scenario analysis
d. Single-point estimates
10
11. PwC
Capital forecasts
1. As the ICAAP must be forward-looking, it needs to incorporate
planned capital levels.
2. A fully-integrated capital forecast would be linked to the planning
and budgeting process, providing forecasts for:
a. Available physical (book) capital – essentially a function of profits,
dividends and other capital management activities
b. An adjustment of the available physical capital to reconcile to available
economic capital and regulatory capital
c. Required economic capital – essentially a function of forecast credit
exposures, market risk limits etc.
d. Required regulatory capital – essentially a function of forecast risk-
weighted assets.
3. Forecast requirements should be compared with forecast
availability.
11
12. PwC
Capital stress tests
1. Pillar 1 stress tests
a. “tail” test
b. Sensitivity analysis
2. Pillar 2 stress tests
a. Capital stress test
b. Additional scenarios for pillar 2 risks
3. Level of severity? – look to regulatory guidance
4. Purpose: to demonstrate that the bank can survive a reasonably
severe crisis without breaching minimum capital levels
12
13. PwC
Capital stress tests illustrated (1)
13
Capital ratios
Time horizon of forecast and stress test
Minimum
Base case forecast
“Gross” stress test
“Net” stress test
Bank will need to show
how it intends to ensure
that this gap is
eliminated, usually by
adding this amount to the
initial ICA as a buffer or
by raising additional
capital in the plan
14. PwC
Capital stress tests illustrated (2)
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Capital ratios
Time horizon of forecast and stress test
Minimum
Base case forecast
“Gross” stress test
“Net” stress test
Additional capital raised
16. PwC
Challenges in implementation
1. Making it relevant for the business (and meeting the use test)
2. Defining risk appetite is not easy!
3. Assessment of material risks
a. Comprehensiveness
b. Appropriateness of approach
4. Capital forecasting
a. How robust is the planning/budgeting process?
b. Time horizon?
5. Capital stress testing
a. Is the stress scenario appropriate?
b. Are mitigating actions credible?
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17. PwC
ICAAP: Business benefits
• Enhances ability to understand how much capital flexibility exists to
support risk appetite and acquisition strategy
• Enables understanding of capital requirements under different economic
scenarios and “stress” scenarios
• Builds and supports linkage between risk and capital – and ties
performance to both;
• Positions Bank to optimize the outcome of supervisor’s review of capital
requirements, freeing up the maximum amount of capital to support
strategic flexibility
• Strengthens position to respond to increasing focus on capital management
by both rating agencies and analysts.
• As regulators and banks gain experience with Basel II framework, objective
would be to have the “regulatory” capital requirement move closer to the
Bank’s view of required capital (including support for target rating) –
blurring of Pillar 1 & Pillar 2 components
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19. PwC
Typical roles and responsibilities
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Function Role
Risk owners •Risk maps
Risk management •Assessment of individual risks
•Risk appetite
•Input into capital stress testing
Finance •Initial ICA
•Capital planning
•Capital stress testing
Internal Audit •Review and challenge
Senior management •Review, challenge and approve
Board •Review, challenge and approve
20. PwC
Challenges: Risk appetite and risk-bearing
capacity
1. Level of senior management/board involvement?
2. Is it consistent with past experience?
3. Is it consistent with strategic and business plans?
4. Proper level of review and challenge at Board level?
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21. PwC
Challenges: Assessment of material risks
1. Was there full involvement of risk owners and risk management?
2. Risk maps fully documented?
3. Is it complete based on past experience?
4. Has all relevant date been incorporated into the assessment?
5. Is the modelling approach appropriate for the type of risk?
6. Has ‘material’ been clearly and properly defined?
7. Proper level of review and challenge at senior management and
Board level?
8. Arithmetic accuracy of Internal Capital Assessment?
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22. PwC
Challenges: Capital planning
1. Robustness of underlying budgeting/planning process?
2. Appropriate time horizon (3-5 years)?
3. Sufficient granularity of detail?
a. Components of available capital?
b. Proper treatment of dividends etc?
c. Different assets classes?
d. Different RWA classes?
4. Consistent with past experience?
5. Arithmetic accuracy?
6. Proper challenge, review and sign-off?
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23. PwC
Challenges: Capital stress testing
1. Is the severity of the stress scenario(s) appropriate?
2. Are the results consistent with the scenario(s) adopted?
3. Has there been proper involvement of all relevant departments?
a. Strategy
b. Economics
c. Business heads
d. Risk
e. Finance
4. Is it consistent with regulatory expectations?
5. Are management mitigating actions credible?
6. Arithmetic accuracy?
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24. PwC
Challenges: Use test
1. How effectively is the ICAAP embedded into day-to-day
management processes?
a. Capital allocation
b. Capital budgeting and rationing
c. Performance measurement
d. Pricing
e. Compensation
f. Investor communications
g. Risk management (limits etc)
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25. PwC
Challenges: Overall ICAAP governance
1. Was there a single ‘owner’ of the ICAAP to drive a consistent,
comprehensive approach?
2. Was there the right level of involvement of other stakeholders?
a. BUs, Risk, Finance, Strategy, Economics, etc?
3. Has senior management/the Board been actively involved in review
and challenge?
4. Was there a formal sign-off process?
5. Any involvement of external parties to develop/review the ICAAP?
a. Skills and qualifications?
b. Any issues raised by them not addressed?
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27. PwC
Ongoing maintenance
1. ICAAP should be refreshed at least annually
2. More frequently if:
a. Significant M&A or disposals
b. Significant changes in corporate structure
c. Material changes in regulatory requirements (e.g. Basel III)
d. Crisis occurs
3. If no major changes, it is a ‘refresh’, not a ‘re-do’
4. IA needs to review the process to ensure that:
a. All elements have been reviewed to ensure relevancy
b. Capital planning and stress testing updated
c. Proper review, challenge and approval
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