Economic Capital Allocation Workshop

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Risk Management and Economic Capital

• After the Crisis - The Changing Assumptions about Risk Management
• The Evolution of Risk Management – from Duration to ERM
• The Need for more Efficient Capital Assessment and Allocation
• Approaches to Measuring and Managing Risks
  • The “Silo” Approach to Measuring and Managing Risks
  • Enterprise-wide Risk Management
• The Foundations of Economic Capital
• Economic Capital as a “Common Currency” for Risk

Economic Capital in Banks

• Why Increased Focus on ”Economic Capital”?
• Integration and Mutation of Risks
• Active Risk Management
• Board Reporting, Strategic Decision Making and Shareholder Value Creation

12.00 - 13.00 Lunch

13.00 - 16.30 Economic Capital Assessment and Allocation

• Using Mathematical Modelling for Assessing Economic Capital at the Institution Level
  • Risk factors and diversification
  • Quantifying EC of integrated risks
  • Treatment of specific risks (e.g.: business or strategic risk)
• Allocating Capital Across Business Units
  • Making risk-return profiles comparable across business lines
  • Estimating how much risk each business unit contributes to the institutions’ total risk
  • Determining major sources of concentration and diversification
  • Deciding who gets the diversification benefits
  • Deriving appropriate limits for all risks and business lines
• Risk Pricing, Loan Pricing and Limit-Setting Based Upon Economic Capital
• Measuring and Evaluating Risk-Adjusted Performance
• Small Exercises

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 ICAAP – the Internal Capital Allocation Process under Basel II

• Introduction to ICAAP
  • Pillar II, ICAAP and SREP
• The Four Principles of Pillar II
• ICAAP Requirements
  • Assessments of the amounts, types and distribution of financial resources, capital resources and internal capital
  • Identification of the major sources of risk
  • Stress and scenario tests
  • Ensure that the processes, strategies and systems used in its ICAAP, are both comprehensive and proportionate to the nature, scale and complexity of that firm’s activities
  • Documentation of the Institution’s ICAAP
• A Closer look at the ICAAP Requirements
  • Capital adequacy
  • Risks analysis
  • Capital planning
  • Scenario analysis and stress testing
  • Liquidity Planning
  • Aggregation and diversification

12.00 - 13.00 Lunch

13.00 - 16.00 Workshops: Practical Cases in Economic Capital Assessment and Allocation

• Workshop 1:
  • Identifying and Assessing an Institution’ s Risk According the ICAAP Requirements
  • Setting Strategic Risk and Earnings Targets within an ERM Framework
• Workshop 2:
  • Building and implementing a quantitative economic capital model
  • Measuring risks on an integrated basis
  • Calculating the overall capital requirement in the institution
  • Integrating regulatory and economic capital models into an overall framework
• Workshop 3:
  • Internal Capital Allocation and Performance Measurement

Evaluation and Termination of the Workshop