Capital Management.
Dear SAP Banking community members.
The more we move into the second phase of the great recession (sovereign debt crisis), the more we feel that the exit strategy is in the efficient management of the resources.
A clear example of that is the raise on the regulatory capital levels proposed by Basel III, because Solvency (Regulatory Capital) is the most critical resource of the Financial System.
What activities should be the response to the requirement of efficient Capital Management?
1) Planning the expected return of an investment as a direct consequence of its regulatory capital consumption. It sounds logical; the more risk the bank is exposed to, the more capital is consumed and the more profit is to be expected. But that means to determine the loans cost according the capital situation of the bank. Are banks currently doing that?
2) Hedge Accounting is an opportunity for improving the bank result with the same portfolio. If the bank can prove that their risk mitigation effects on their exposures IFRS lets them recognize additional profit adjustments with the same capital consumption.
3) Managing liquidity, solvency and profit in an integrated way.
4) Netting of assets and liabilities of the bank for reducing the EAD and consequently the regulatory capital consumption.
5) Dynamic Collateral Management. Right collateralization of the assets is a risk mitigation technique recognized by the solvency regulation, but over-collateralization means inefficient management of the capital. In the end, collateral rights are a “kind” of asset for a Bank. Why not to manage it efficiently so as to improve the Bank’s result.
Those are just some ideas, but I’d like to know the community members opinion.
Kindest Regards.
Ferran.
The more we move into the second phase of the great recession (sovereign debt crisis), the more we feel that the exit strategy is in the efficient management of the resources.
A clear example of that is the raise on the regulatory capital levels proposed by Basel III, because Solvency (Regulatory Capital) is the most critical resource of the Financial System.
What activities should be the response to the requirement of efficient Capital Management?
1) Planning the expected return of an investment as a direct consequence of its regulatory capital consumption. It sounds logical; the more risk the bank is exposed to, the more capital is consumed and the more profit is to be expected. But that means to determine the loans cost according the capital situation of the bank. Are banks currently doing that?
2) Hedge Accounting is an opportunity for improving the bank result with the same portfolio. If the bank can prove that their risk mitigation effects on their exposures IFRS lets them recognize additional profit adjustments with the same capital consumption.
3) Managing liquidity, solvency and profit in an integrated way.
4) Netting of assets and liabilities of the bank for reducing the EAD and consequently the regulatory capital consumption.
5) Dynamic Collateral Management. Right collateralization of the assets is a risk mitigation technique recognized by the solvency regulation, but over-collateralization means inefficient management of the capital. In the end, collateral rights are a “kind” of asset for a Bank. Why not to manage it efficiently so as to improve the Bank’s result.
Those are just some ideas, but I’d like to know the community members opinion.
Kindest Regards.
Ferran.
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