Bank Capital Management - Capital Planning, Fund Transfer Pricing and RAROC

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00

The Nature and Utility of Banks Capital

  • Why do banks need capital?
  • The regulatory, accounting and economic views of capital
  • Capital regulation from Basel 1 to Basel 4 and beyond
  • Accounting capital, its components and the role of equity
  • Economic capital and value creation
  • Capital allocation and financial planning

The Articulation between Capital and Risk

  • Capital as a means to take risks and generate profits
  • Risk appetite objective and indicators
  • Risk tolerance logic
  • Risk, return and capital, the magic triangle
  • Assessing added value
    • Economic Profit
    • RAROC and Economic Value Added

12.00 - 13.00 Lunch

13.00 - 16.30

Capital Planning and Risk Management

  • Fundamental components of capital planning
    • Internal control and governance
    • Capital policy and risk capture
    • Forward-looking view
    • Management framework for preserving capital
  • Benefits of capital management
    • Risk strategies, diversification, market share, pricing

Foundations of Risk Management

  • A brief history of Risk Management
  • The RICAP process
    • Risk hunting and identification
    • Risk taxonomy
  • Game on all issues covered during day 1

Day Two

09.00 - 09.15 Brief Recap

09.15 - 12.00 Economic Capital Concepts

  • Foundations of Economic Capital
    • The seven guidelines
  • Implementation steps
    • Articulation with Basel Pillar 2
    • Articulation with Finance/IFRS 9

Economic Capital Assessment

  • Steps to measuring Economic Capital
    • Risk Capital as standalone risk measure
    • Economic Capital as Marginal risks measure
  • Measuring Credit Risk Capital
    • Basel 2/3 formula analysis
    • Credit VaR and concentration
  • Measuring market risks
    • Balance sheet and trading risks
    • Interest rate, FX, equity, spread and other market risks
  • Measuring operating and other risks
  • Aggregating risks
    • Managing inter risks correlations

12.00 - 13.00 Lunch

13.00 - 16.30

Economic Capital in Practice

  • Expected results and interpretation
    • Business models and risk profiles
  • Articulating Economic and Regulatory Capital
    • Perimeters and severity level
    • Risk coverage and methodologies
  • Organization of the Economic Capital team
    • Required functions, committees and IT support
  • Benchmarks and review of banks disclosures

Case study: Dexia

  • The rise and the fall: facts and figures
  • Analysis and lessons

Day Three

09.00 - 09.45 Economic Capital Exercise Review and Discussion

09.45 - 12.00 Funds Transfer Pricing

  • Organization of the ALM, the nuclear reactor of the bank
  • Commercial and Financial margins
  • Steering of the Commercial margin
  • Steering of the Financial margin
  • Pricing internal funding using Reference refinancing

12.00 - 13.00 Lunch

13.00 - 16.30 RAROC, Macro-prudential Regulation

  • RAROC
    • Different types of Risk Adjusted measurement
    • Analysis of RAROC components
    • Live exercise
  • Discussion of macro-prudential regulation issues
    • Can bank still measure their risk properly?
    • What impact of the banking regulation on the economy?
    • Moral hazard and the future of regulation

Final game

Termination of the Seminar and Evaluation

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