Whether you are currently simulating regulatory easing on the economic and regulatory capital of your bank, analyzing the advantages of raising additional liquidity in the context of the TLTRO III-program initiated by the ECB or you are calculating different scenarios of possible courses the current crisis may take and their impact on your capital planning: Generally, you will need to receive accurate results, quickest possible.
The result of capital budgeting – a projection of the capital and equity ratios – is composed of various parameters, which are calculated in different departments of the bank and often within systems that are not interlinked. It is quite common that institutes do not have the necessary tools to melt down single results or underlying parameters to an aggregated capital plan and to visualize the latter in one single step or in an efficient manner.
Having said that we would like to make a link to the article “Focusing capital planning – practical challenges and optimization possibilities“.
Even more so than in normal operation however, quick action and reaction is of crucial importance in times of crisis. For that, timely and precise information is vital.
In March 2020, regulators, namely the ECB and the BaFin, resolved a package of various measures, directed towards supporting the banks in handling the coronavirus-induced crisis. Here again, a broad and consistent overview is of need: What is advantageous for the bank? What is inevitably vital? Where are the bottle necks?
Most of the announced measures (e.g. making use of capital reserves or easing of P2G capital buffers) are impacting pillar 1 as well as the normative perspective of the ICAAP. However, that alone does not necessarily ease the economic perspective; despite the changes and relief provided, the risk-bearing capacity does not improve and remains on the same level as before. At the same time however, from an economic point of view, the bank’s risk potentials arising from security and credit portfolios are increasing: In the short term, e.g. credit spread risks and mid- to long-term counterparty default risks are gaining increasing relevance.
In that context, having a look at the refinancing programs passed by the ECB might be worthwhile: Their main objective is to maintain the generally “cheap” credit pricing for the real economy. Nevertheless, these are also resulting in quite attractive revenue opportunities for banks, due to the currently attractive refinancing conditions, that are induced by negative interest rates and due to the additional granting of premiums. Still, it is inevitable to analyze those revenue potentials with regard to their impact on the capital- and risk-situation of the bank.
The PwC Approach combines methodical benchmark-knowledge and professional experience from various consulting engagements with a technical solution for the visualization and optimization of capital- and business-planning. A short-term implementation can provide you with relevant information required in the crisis to take the right decisions for your bank.
We are looking forward to get in touch with you personally in order to discuss optimization-potential in a non-binding informational dialogue. Feel free to contact us any time.
WP StB Michael Maifarth
Telefon +49 69 9585 2318
Mobil +49 170 786 5727
WP Dieter Lienland
Telefon +49 211 981 4929
Mobil +49 171 553 2631
Telefon +49 30 2636 5018
Mobil +49 170 473 8250
Telefon +49 211 981 4173
Mobil +49 170 730 2362