ICAAP in Russia Friedrich Bleijenberg Bank Uralsib The agenda - - PowerPoint PPT Presentation

ICAAP in Russia Friedrich Bleijenberg Bank Uralsib

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The agenda enda

ICAAP in Europe – a short history The lessons from Europe and the time for Russia Capital for ICAAP – the choices Famous last words

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Europe,

• pe, Basel

el implem ement entati ation

• n and the 2008

8 crisis

UK: Principle based ICAAP Germany: Rule based MARISK European regulators focused differently

• n ICAAP….

But the 2008 crisis still happened…

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Basel II 2007 2008 Liquidity Crisis 2010 Basel III 3624-U 2001

Too little e too late

483-P 2015 2012 Pillar 1 IRB AMA MA Pillar 2 ICAAP SREP Pillar 2 ICAAP SREP Pillar 1 IRB 96-T 192-T

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• Governance – make sure you have a

proper governance framework to manage risks, capital, business and models

• Documentation – key is to document

processes policies and procedures properly within the ICAAP framework

• Economic Capital – alignment of ICAAP

and ECAP is key, only by being able to show that the quantitative methods you use are also really used in business decision taking can you convince a regulator that your methodology makes sense

• Data – modelling is important, but if the

data is not correct your models won’t work

• Stress testing – Don’t overdo it…. Keep

close to reality and to your business

A good d time for lessons

• ns learned

ned

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Universal ersal gover ernanc nance e structur ture

Supervisory Board Compensation Committee Risk Committee Audit Committee Senior Management ALCO Enterprise Risk Committee Credit Committee Compliance Committee

Governance is key

Basel defines 13 principles around governance Key items:

• Delegation of authority
• Independence of risk management
• Role of the supervisory board
• 3 lines of defence

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Methodol

• dology
• gy is key

Documentation of ICAAP – be aware of the piles

Strategies Policies Methodologies

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Basel el and ICAAP AP capi pital tal

Pillar 1: Quantitative approaches to capital Credit IRB (F/A): Models Operational AMA: Models Market MA: Models Pillar 2: Assessment approaches Use of Pillar 1 models ‘Own’ approaches to assessment Economic Capital IRRBB Liquidity Other Risks Stress testing

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Regulator ators want clear ar capital tal to cover er risks

Regulatory capital based on Pillar 1 calculations and Pillar 2 additions But models need to have a proper use-test

3624-U about Capital:

• Current capital needs and planned capital
• Limit system
• Capital adequacy assessment
• Stress testing for all significant risks
• The risk management methodologies chosen should be either

following CBR rules or be part of ‘international best practices’

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But what does the boardroom want….

Economic Capital! I need to understand my capital needs to run my business optimally!

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How to merge e the views ws

Economic Capital:

• Use test by business use
• Based on quantitative methods
• Focus on Credit and Market risk
• Lifecycle expected loss

Regulatory Capital:

• Use test needs proof
• Based on quantitative methods

for Pillar 1 risks

• Annual expected loss
• SREP as control mechanism

Using your Economic Capital models under Pillar 2 is a good option, but they have to be broadly Basel compliant

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CHALLENGES Low Medium High

Minimum capital

BASE CAPITAL

One aim is to reduce the “supervisory multiplier” by demonstrating to the regulator that the process for assessing overall capital adequacy is robust and credible by fulfilling all SREP requirements

• Review of Pillar 1 numbers and

methodologies

• Meeting operational risk criteria for

TSA/ASA Credit risk Operational risk Market risk Credit risk controls Operational risk controls Market risk controls

Pillar 2

• Modelling of capital plan with/without

management actions

• Alignment of risk and finance data,

systems and processes

• Diversification
• Methodology robustness of non Pillar

1 risks

• Treatment of non-quantifiable risks
• Choice of stress tests (mild versus

severe) and testing consistency Pillar 2 risk Pillar 2 controls Capital planning & stress testing

• Sufficient capital to support/fund

strategy

• Quality and use of capital
• Assessing ICAAP quality
• Adoption (testing, use) and challenge

(internal audit, external review)

• Peer group analysis
• Disclosure mechanisms
• SREP Measurement versus 3050-P

Supervisory multiplier

Methodology for managing capital ICAAP Organization

Level of Capital to be held

How does my capi pital tal look

It is crucial that firms are fully confident with their ICAAP and that it is embedded throughout the business, from board level adoption to operational implementation!

ICAAP results Risk Management & Capital

Pillar 1

SREP score 2-3 SREP Score 3-4 SREP Score >4

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But ICAAP AP is more than n just t capi pital tal

The regulator doesn’t know all. We need to teach our regulators about ourselves. Regulators and auditors change often, so every time we might be tested and audited by a different leader or team. The key is that as a bank you tell a consistent story. The ICAAP process, and with that key documents like Risk strategy and ICAAP document are there to help you to tell this story. Tools around document management, a proper governance process around review and approval will further establish the level of maturity around ICAAP. But the key is, not to act purely on what is written in Basel and CBR documents. The key is to act in the boardroom, to challenge what is presented and to want to understand what risks are there in the bank and to comprehend the consequences of strategic decision.