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Economic Capital Workshop
2 Day Workshop
INTRODUCTION
This course provides a series of practical workshops examining the latest tools, techniques and best practices surrounding economic capital allocation within a financial institution. Each workshop will explore wide-ranging, up-to-the minute issues in a comprehensive, frank manner. Led by senior practitioners and industry experts from around the globe, this course addresses important economic capital topics such as strategic use of economic capital, calculating economic capital for credit, market and operational risks, integrating stress-testing into the capital management processes, and the role of regulatory capital and relationship with Basel II capital requirements. This course is another perennial favorite GARP course, as past delegates have found it very useful and informative and something they would highly recommend to colleagues.
Who should attend?
This intensive and interactive training course is designed for practitioners with limited knowledge of credit and credit risk management. As its primary objective, the course aims to provide an understanding of corporate and retail credit risk.
PROGRAM
Day 1
09:00 Registration and morning coffee
09:30
Calculating Economic Capital
Credit Risk
Credit capital – where to find the parameters?
Choosing a model
CreditRisk+
Moody’sKMV
Jarrow
Validated the results
Stress testing models
Link between stress scenarios and capital adequacy
Integrating stress testing into the bank's capital management process
Examining the types of credit modelling, inputs and assumptions made for wholesale credit risk, retail and SME portfolios
Overcoming data constraints
Credit risk measurement: PD and LGD
Credit correlations and loss distribution
Market Risk
Risk factors and valuation
Exposure modelling and measuring counterparty credit risk
Interest rate risk in the banking book
Market risk measurement: value-at-risk and stress testing
Correlation and aggregation
Assessing the copula approaches and challenges associated with them
Model validation requirements and Basel II requirements
Integration of market and credit risks - assessing the various copula approaches and the difficulties associated with them
Operational Risk
Principles of incorporating qualitative risk and control self-assessment (forward looking view) into quantitative (frequency and severity) distributions for computing economic capital for operational risk
Measuring frequency and severity of operational losses
Models based on internal, consortium and public loss data
What drives the capital need for operational risk?
Correlations, control environment and other loose ends
Risk analytics in support of business decision making
Basel II and operational risk capital:
Models underlying the AMA and validation requirements
Pillar II and internal governance issues
12:30 lunch
14:00
Risk-based Decision Making
Risk-based pricing
RAROC and profitability
Optimizing the credit process with capital
Portfolio management of credit risk
Economic capital in product pricing and customer profitability
Allocating economic capital to different business units
The effect of economic capital on pricing
Capital allocation and performance measurement
Modifying business behavior
Performance assessment and culture within a bank
RAROC - its use in pricing and performance measurement
Day one concludes by 17:00
Day 2
09:00 Registration and morning coffee
09:30
Economic Capital and the Stakeholders
Regulation and economic capital: Pillars I and II
Disclosing the results to bond and equity holders
Rating agency use of internal capital models
Board reporting of economic capital
Shareholder value creation metric and economic capital
Correlation and aggregation
Examining the relationship with Basel II requirements and model validation requirements
The Supervisor’s perspective
Economic and regulatory capital:
Examining the relationship
What are the differences and similarities?
Convergence of economic and regulatory capital
Linking the use of regulatory capital to manage the business
Reporting the results to senior management
Desirable properties of a capital allocation methodology
ICAAP: managing capital adequacy processes under Basel II
Examining key ICAAP requirements
Identifying all relevant risk factors
Implementing efficient processes to capture risks
Calculating risk capital requirements
Linking national requirements with the overall group level economic capital process
Determination of additional economic and/or regulatory capital requirement from stress testing results
12:30 lunch
14:00
Planning, Risk Transfer and Other Limitations on the System
Forecasting capital requirements with two year horizons
Capital management and planning:
Actual capital
Economic capital
Regulatory capital
Scenario testing and economic capital
Liquidity risk measurement and planning
Liquidity and Capital
Risk transfer and changing the capital needs
Contingent capital
Securitization
Economic capital arbitrage
Assessing the shortfalls of the economic capital system and areas for improvement
Shortcomings of traditional economic and regulatory capital concepts
By becoming a GARP member you become part of a global community of financial risk professionals. 
