Higher portfolio risks, bad loan volatilities and the re-design of business models result in new, more stringent requirements for capital planning and management. As both banking supervisors and capital markets increasingly demand proactive capital management from banks, the early anticipation of future developments in business segments as well as risk parameters and, hence, the estimation of capital needs for forthcoming periods will become a key competition factor.
The experiences gathered by zeb/ show that active capital management is frequently hindered by systematic weaknesses at present. These include the inconsistent delimitation of control portfolios, lacking management instruments and missing feedback between target and actual values as well as inefficient processes in the field of information collection and pooling.
Our solution is a practice-tested approach made up of three modules:
- Inclusion of regulatory indicators into top management reporting — integration of capital charges in limits, monitoring and control as well as introduction of tools for identifying RWA drivers
- Definition of options for action — development of measures for RWA optimisation, preparation of impact analyses with regard to new requirements under Basel III (QIS 2010) and determination of actions needed
- Implementation of flexible extrapolation and simulation solutions — performance of reporting forecasts, medium-term planning and stress tests