Dear,
Friday this week the European Banking Authority will release the results of its latest stress test.
http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2016
Capital requirements and capital levels have been the main topic in Banking supervision since the 2008 financial crisis.
In the same line, two words are going to become very popular in the next months, TLAC and MREL. TLAC stands for Total Loss Absorbing Capacity and MREL stands for Minimum Requirement for Own Funds and Elegible Liabilities.
The Total Loss Absorbing Capacity determines the capital requirements for systemic banks and financial groups, that must be available to absorb potential losses.
The Minimum Requirement for Own Funds and Elegible Liabilities will determine the capital requirements for non systemic banks.
Implementing these standards is going to have serious consequences. During this year, European banks have suffered heavy losses in the stock market as a consequence of high levels of delinquency, low profitability of the banking business, and the regulatory changes increasing the banks capital requirements.
Additionally, shareholders losses penalize the markets feeling on the banking sector, increasing the cost of capital of the industry, opening the gate for more losses.
Bringing clarity to the regulatory framework is the key to exiting this vicious cycle; hopefully, in the oncoming months, the regulator will define.
1) The standard and internal approaches to measure the Credit and Operational Risk.
2) Methods to determine the Leverage Ratio for systemic and non-systemic banks.
3) Final definition of the Total Loss Absorbing Capacity requirements and Minimum Requirement for Own Funds and Elegible Liabilities, for systemic and non-systemic banks.
The question is; what can be the impact of the final definition of the regulatory framework?
Let's see some estimations.
Two weeks ago, David Folkerts-Landau, chief economist of the Deutsche Bank, estimated that 150.000 million euros are needed for recapitalizing the European banking system.
http://www.bloomberg.com/news/articles/2016-07-10/eu-banks-need-166-billion-deutsche-bank-economist-tells-welt
According to Bloomberg, the European Banking Authority estimates that 470.000 million euros are needed for fulfilling the capital requirements determined by the TLAC and MREL standards.
http://www.bloomberg.com/news/articles/2016-07-20/european-banks-may-need-517-billion-of-loss-absorbing-capital
It's clear that Capital is going to be scarce and expensive, consequently Capital Optimization is going to be at the center of the banks strategic plans.
Capital Optimization starts by measuring how, where and when capital is consumed. Questions that can be answered by SAP Bank Analyzer.
Bank Analyzer comes with a data-model (Financial Database), and a calculation layer (Risk Engines of the Process and Methods Layer), which provide detailed measurement of the capital consumed by any analytical dimension.
The Financial Position Objects of the Results Data Layer represent the fundamental constituent of the capital and accounting value of the banks financial instruments.
Additionally, the Financial Position Objects can be stressed in simulated scenarios that will provide a holistic vision of the bank's portfolio value, and the capital consumed for generating this value.
And this is just the beginning; combining the computing capabilities of SAP HANA with known algorithms of discrete mathematics, like the Simplex method, we can build future Risk Engines for Capital Optimization.
This is the value proposition of Bank Analyzer, the best answer for the biggest concern of the banks' executives.
In my opinion, this value proposition should be highlighted, maybe calling it Capital Optimizer instead of Bank Analyzer, but this is a different story.
Join my SAP Banking Group at: http://www.linkedin.com/e/gis/92860
Looking forward to read your opinions.
K. Regards,
Ferran.
Friday this week the European Banking Authority will release the results of its latest stress test.
http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2016
Capital requirements and capital levels have been the main topic in Banking supervision since the 2008 financial crisis.
In the same line, two words are going to become very popular in the next months, TLAC and MREL. TLAC stands for Total Loss Absorbing Capacity and MREL stands for Minimum Requirement for Own Funds and Elegible Liabilities.
The Total Loss Absorbing Capacity determines the capital requirements for systemic banks and financial groups, that must be available to absorb potential losses.
The Minimum Requirement for Own Funds and Elegible Liabilities will determine the capital requirements for non systemic banks.
Implementing these standards is going to have serious consequences. During this year, European banks have suffered heavy losses in the stock market as a consequence of high levels of delinquency, low profitability of the banking business, and the regulatory changes increasing the banks capital requirements.
Additionally, shareholders losses penalize the markets feeling on the banking sector, increasing the cost of capital of the industry, opening the gate for more losses.
Bringing clarity to the regulatory framework is the key to exiting this vicious cycle; hopefully, in the oncoming months, the regulator will define.
1) The standard and internal approaches to measure the Credit and Operational Risk.
2) Methods to determine the Leverage Ratio for systemic and non-systemic banks.
3) Final definition of the Total Loss Absorbing Capacity requirements and Minimum Requirement for Own Funds and Elegible Liabilities, for systemic and non-systemic banks.
The question is; what can be the impact of the final definition of the regulatory framework?
Let's see some estimations.
Two weeks ago, David Folkerts-Landau, chief economist of the Deutsche Bank, estimated that 150.000 million euros are needed for recapitalizing the European banking system.
http://www.bloomberg.com/news/articles/2016-07-10/eu-banks-need-166-billion-deutsche-bank-economist-tells-welt
According to Bloomberg, the European Banking Authority estimates that 470.000 million euros are needed for fulfilling the capital requirements determined by the TLAC and MREL standards.
http://www.bloomberg.com/news/articles/2016-07-20/european-banks-may-need-517-billion-of-loss-absorbing-capital
It's clear that Capital is going to be scarce and expensive, consequently Capital Optimization is going to be at the center of the banks strategic plans.
Capital Optimization starts by measuring how, where and when capital is consumed. Questions that can be answered by SAP Bank Analyzer.
Bank Analyzer comes with a data-model (Financial Database), and a calculation layer (Risk Engines of the Process and Methods Layer), which provide detailed measurement of the capital consumed by any analytical dimension.
The Financial Position Objects of the Results Data Layer represent the fundamental constituent of the capital and accounting value of the banks financial instruments.
Additionally, the Financial Position Objects can be stressed in simulated scenarios that will provide a holistic vision of the bank's portfolio value, and the capital consumed for generating this value.
And this is just the beginning; combining the computing capabilities of SAP HANA with known algorithms of discrete mathematics, like the Simplex method, we can build future Risk Engines for Capital Optimization.
This is the value proposition of Bank Analyzer, the best answer for the biggest concern of the banks' executives.
In my opinion, this value proposition should be highlighted, maybe calling it Capital Optimizer instead of Bank Analyzer, but this is a different story.
Join my SAP Banking Group at: http://www.linkedin.com/e/gis/92860
Looking forward to read your opinions.
K. Regards,
Ferran.
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