Bank Capital Management - Economic Capital, Funds Transfer Pricing & RAROC

• Understanding the Role of Banks Capital
• Articulating Capital, Risk and Return
• Risk Identification, Measurement and Aggregation
• Regulatory and Economic Capital
• Internal Funds and Risk Transfer Pricing
• Risk-Adjusted Performance Measurement and Monitoring
• Current Issues and Concerns

The purpose of this seminar is to give you a clear understanding of what is banks capital, why it is crucial and how to use it to create value. Banks are managed using two desynchronized steering wheels: The regulatory framework that ignores profitability, and the financial framework, quite disconnected from risk issues. The evolution of the banking environment, IFRS 9, FinTech, Covid, etc. requires banks to manage more dynamically their capital. This seminar clarifies for you the issues and the practical ways to handle them. The seminar consists of six study sessions.

The six sessions are articulated as follows: We start by clarifying the nature of capital and why you need capital to take risks. Then we look at risks, how to identify and classify them, and how to measure them properly. We then articulate risk and return measures to provide transactions pricing and efficient performance indicators. More specifically:

Session 1 starts with the exploration of the different capital metrics: Regulatory, accounting and economic. We look at the components of capital, their “raison d’être” and capital planning.

Session 2: Once the articulation between capital and risk is clearly defined, we address the issues of risk appetite and tolerance, capital usage and allocation. We discover the RICAP, the process used to identify, hunt and classify risks.

Session 3 is dedicated to Economic Capital, the economic measure of risks. It is a neutral and transverse risk metrics, applicable to all measurable risks, and it ultimately provides the level of capital needed to cover each risk.

Session 4 looks at how to link Economic Capital to profitability and capital measures, in order to provide powerful top to bottom performance measures and efficient management decisions support.

Session 5 addresses the intricacies of funds transfer pricing, or how to move capital, risks and funds inside the bank so that performance indicators remain relevant and efficient from the business level, down to the transaction level.

Session 6 deals with how to combine risk and return measures to the pricing of transactions (RAROC); and to conclude the seminar, we address the current issues and concerns related to bank’s capital management.

Host or Publisher MONECO Financial Training