Dear,
Last month I was invited to a conference for speaking about Capital Optimization, and a common concern was how to implement quickly a Capital Optimization system.
Unfortunately there're no magic potions or shortcuts when it comes to implementing Capital Optimization systems.
Capital Optimization is a logical process, but the implementation of an accurate Capital Management system, is one of the most complex activities that a bank can face today.
Anyway, the Financial Crisis (systemic change) is also making it the most critical one, so it is going to happen, whatever it takes.
If you want to implement a Capital Optimization system, you need to start by building an Information System which provides an accurate measure of the Capital Consumed by business process and market segment, under base and stressed scenarios, as a consequence you will obtain an accurate determination of the Bank´s Free Capital.
In my opinion, SAP Bank Analyzer provides the best technological infrastructure for achieving accurate estimations of the Capital consumed by business process, market segment or micro-portfolio.
Determining Free Capital requires managing holistically information from different sources; information which bank´s are processing today in isolated, silo-style systems, with very limited integration.
Capital is consumed mainly by Impairment Provisions, Portfolio Depreciations, Risk Weighted Assets, Value At Risk of the bank's portfolio, Capital Requirements due to Operational and Conduct Risk, and in more sophisticated models, Capital Costs associated with physical assets, support business process, etc.
SAP Bank Analyzer provides Risk Engines for accurate calculations of the Capital Consumed by the bank´s Risk Weighted Assets, Impairment Provisions and Portfolio Valuations, and more than that, provides a holistic integration of the calculations results in an homogenous metadata-base (Financial Database-Results Data Layer).
This is interesting because, Risk Provisions and Portfolio Valuations are purely accounting data while Capital consumed by the Risk Weighted Assets is solvency related data.
The Financial Database-Results Data Layer has been built as a flexible hierarchy, which permits storing data coming from different origins (Accounting and Solvency), in an integrated framework of common characteristics (Results Data Area); fulfilling the specific technical requirements of the different data, with alternative Result Types and Categories.
Current versions of Bank Analyzer don´t offer Risk Engines for determining the capital consumed by Value At Risk, Operational Risk and Conduct Risk. But they can be calculated with other systems (some of them are also offered by SAP) and, taking advantage of the Open Architecture of the Bank Analyzer-IFRA, being integrated into the Financial Data Base model, facilitating and accurate measure of the bank´s capital consumption.
Finally, we said that Capital Consumption and Free Capital Determination models should include the impact of physical assets and support activities. This is probably one of the main competitive advantages of the SAP Banking business suite.
SAP has more than 30 years of experience providing best of breed Management Accounting solutions (Cost Center Accounting, Cost and Investment Orders, Activity Based Costing, etc.) for determining costs associated to support business processes and physical assets.
Integrating those Cost Models into the Results Data Layer with CVMP processes is perfectly feasible, including all the necessary components for an accurate determination of the bank´s Capital Consumption and Free Capital.
Looking forward to read your opinions.
K. Regards,
Ferran.
Last month I was invited to a conference for speaking about Capital Optimization, and a common concern was how to implement quickly a Capital Optimization system.
Unfortunately there're no magic potions or shortcuts when it comes to implementing Capital Optimization systems.
Capital Optimization is a logical process, but the implementation of an accurate Capital Management system, is one of the most complex activities that a bank can face today.
Anyway, the Financial Crisis (systemic change) is also making it the most critical one, so it is going to happen, whatever it takes.
If you want to implement a Capital Optimization system, you need to start by building an Information System which provides an accurate measure of the Capital Consumed by business process and market segment, under base and stressed scenarios, as a consequence you will obtain an accurate determination of the Bank´s Free Capital.
In my opinion, SAP Bank Analyzer provides the best technological infrastructure for achieving accurate estimations of the Capital consumed by business process, market segment or micro-portfolio.
Determining Free Capital requires managing holistically information from different sources; information which bank´s are processing today in isolated, silo-style systems, with very limited integration.
Capital is consumed mainly by Impairment Provisions, Portfolio Depreciations, Risk Weighted Assets, Value At Risk of the bank's portfolio, Capital Requirements due to Operational and Conduct Risk, and in more sophisticated models, Capital Costs associated with physical assets, support business process, etc.
SAP Bank Analyzer provides Risk Engines for accurate calculations of the Capital Consumed by the bank´s Risk Weighted Assets, Impairment Provisions and Portfolio Valuations, and more than that, provides a holistic integration of the calculations results in an homogenous metadata-base (Financial Database-Results Data Layer).
This is interesting because, Risk Provisions and Portfolio Valuations are purely accounting data while Capital consumed by the Risk Weighted Assets is solvency related data.
The Financial Database-Results Data Layer has been built as a flexible hierarchy, which permits storing data coming from different origins (Accounting and Solvency), in an integrated framework of common characteristics (Results Data Area); fulfilling the specific technical requirements of the different data, with alternative Result Types and Categories.
Current versions of Bank Analyzer don´t offer Risk Engines for determining the capital consumed by Value At Risk, Operational Risk and Conduct Risk. But they can be calculated with other systems (some of them are also offered by SAP) and, taking advantage of the Open Architecture of the Bank Analyzer-IFRA, being integrated into the Financial Data Base model, facilitating and accurate measure of the bank´s capital consumption.
Finally, we said that Capital Consumption and Free Capital Determination models should include the impact of physical assets and support activities. This is probably one of the main competitive advantages of the SAP Banking business suite.
SAP has more than 30 years of experience providing best of breed Management Accounting solutions (Cost Center Accounting, Cost and Investment Orders, Activity Based Costing, etc.) for determining costs associated to support business processes and physical assets.
Integrating those Cost Models into the Results Data Layer with CVMP processes is perfectly feasible, including all the necessary components for an accurate determination of the bank´s Capital Consumption and Free Capital.
Join the SAP Banking Group at: http://www.linkedin.com/e/gis/
Looking forward to read your opinions.
K. Regards,
Ferran.
