The Moorad Choudhry Anthology by Moorad Choudhry

Author:Moorad Choudhry
Language: eng
Format: epub
ISBN: 9781118779767
Publisher: John Wiley & Sons, Inc.
Published: 2018-05-09T17:01:06+00:00

In terms of governance, a single owner of the ICAAP will help to drive a consistent comprehensive approach (we recommend Treasury, rather than Finance or Risk). For optimum results, key stakeholders in business units, Risk, Finance, Treasury, Strategy, Economics, etc., must be involved in its construction. Both senior management and the Board should be actively involved in the review and challenge process and there should be a formal sign‐off.

According to the PRA, “the ICAAP should be an integral part of the firm's management process and decision‐making culture”. This “Use Test” could, for example, be achieved by capturing the outputs from the ICAAP process in the setting of risk limits, pricing, and/or capital allocation.

In an ideal world, all aspects of the business's financial plan and stress testing activity would be undertaken in one integrated model (base case economic scenario, base case business financial plan, capital plan, and stress modelling of each key risk faced by the firm). In reality, though, these tend to be modelled as separate components, which means that care is required to ensure that the inter‐relationships between the components are explored. There will inevitably be a degree of subjectivity in the production of the final result.

If a Pillar 2A or 2B overlay is applied as part of Individual Capital Guidance, banks must decide how it should be allocated to business lines, if at all. If the level of the regulatory overlay differs from the bank's internal calculations of the level of capital required, the challenge is increased. If this process is not carefully managed, gaps can arise between the business unit view of the level of capital required, on which incentive schemes are based and the aggregate view.

It is important to recognise that ICAAP / SREP / ICG is only part of the capital story. In the US, the comparable process, CCAR (Comprehensive Capital Analysis and Review) also captures Recovery and Resolution Planning to deliver a fully integrated “end to end” capital assessment, which is updated by firms annually. In the UK, the PRA has introduced Recovery and Resolution Planning, but it is separate to the ICAAP.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.