Economic Capital Road Show

2 Day Workshop
(Workshop is not being offered at this time)

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

1. 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

2. 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

3. 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

 Day 2 concludes at 16:30