Business & Decision will guide you in the implementation of the whole Economic Capital framework. Creating added value from a solid data warehouse design to the core of the financial modeling and aggregation, we will help you come up with an amount of economic capital in line with your organization's needs.
Economic capital must be seen as a different concept from regulatory capital (which is the minimum amount of capital that the regulator requires the bank to hold). Economic capital can be thought of as a more precise measure of required capital that financial institutions use internally to incorporate all the risks and measure economic profitability.
Economic Capital is also part of the Pillar 2, which means it is disclosed to regulators as one indicator that all the risks are properly managed.
Measuring Economic capital involves assessing the impact on the fair value of the different parts of the business of the various risks a bank faces such as market, credit, liquidity, etc. Taking into account the risk compensation is also a part of an efficient economic capital framework. The last step is to establish how the aggregated Economic Capital requirement can be allocated back to the various business lines and risk factors. This strategic view will enhance the management investment and optimization decisions.
All this process finds its basis on a sound technical infrastructure. Bringing their financial and technical knowledge, our consultants can help you take the best of each step of the process. Creating added value from a solid data warehouse design to the core of the financial modeling and aggregation, we will help you come up with an amount of economic capital in line with your organization's needs.
Ultimately the framework will provide concrete reports on concentration risk, capital usage by business units, diversification benefits and stress-testing.