Capital Adequacy Assessment & Analysis
Unprecedented market conditions have underscored the key importance of capital and capital adequacy for financial institutions of all sizes.
Recent regulatory pronouncements for both the Advanced and Standardized Approaches under the Basel II framework offer an alternative to and expand upon the existing Basel I rules for calculating risk-based capital (RBC).
Community banks have the option of applying the Standardized Approach to make their estimate of RBC more sensitive to the risks actually assumed by the bank, notably credit and operational risk, and in certain cases, market risk. Overall, understanding and estimating capital requirements more reflective of an institution's risk profile supports robust capital management.
Our Capital Adequacy Assessment
We can assist your institution in estimating and monitoring appropriate capital levels consistent with both Basel I and Basel II capital frameworks, as well as fast developing and current industry assessments.
Employing methods associated with both regulatory capital frameworks, such as internal risk grading, our analysis uses both quantitative and qualitative approaches to estimating your institution's capital levels, providing support for:
- The bank's various risk positions as of a given review date;
- The bank's existing capital level, comparing actual loan loss allowance and Tier One capital to determine the adequacy of each based upon both expected and unexpected loss estimates;
- The bank's ability to measure, grade and manage its risk profile.
Moreover, our analysis can provide your institution with valuable management consulting perspectives concerning the bank's risk profile, including:
- The continued efficacy of the bank's credit risk rating system;
- The continued adequacy of the bank's loan loss allowance levels;
- The continued reasonableness of the bank's implicit probability of default and loss given default estimates, key variables driving both expected and unexpected losses.
