A Roadmap For Integrated Capital Stress-Testing

integrated capital stress-testingOne of the big challenges bank customers tell me about is their inability to manage risk in a truly integrated way.

We are working with one of our North American customers on a roadmap for an integrated capital stress-testing platform.

This involves talking to the bank’s risk managers and IT teams to develop a product that will transform the way they manage and assess risk.

This problem is now urgent for the biggest US bank holding companies, which have to satisfy the Federal Reserve about their capital plans by March.

Dealing with multiple pressures

Banks around the world face similar tests under Basel III to ensure they have enough capital to survive future crises. Increasing costs for capital and liquidity and continuing economic turbulence have put massive pressure on banks’ profitability and margins.

The platform we are working on will have two valuable benefits: it will help the bank to comply with regulatory requirements (Basel III, CCAR) and it will make their business and risk position more predictable, efficient and ultimately profitable.

At the moment, banks often measure and evaluate different types of risk in isolation. Their systems can’t examine the impact of, say, interest rates on an integrated portfolio of credit risk, market risk, liquidity risk and so on in an efficient and comprehensive way. Moreover, a full integration of risk and return is still at a fledgling stage.

Risk and profitability in one platform

Banks need a platform that is both agile and flexible because new regulations are coming along all the time. The solution has to work in real time and handle a mass of data. It needs to allow for integration of risk and profitability data to improve the bank´s overall success. This is perfect for HANA’s in-memory capabilities and the use of predictive analytics.

As well as helping our customer adapt to the next wave of regulation, the system will enable them to prioritise their products and customers to become more profitable.

If a bank knows its overall risk profile and can better predict what happens in the future it can make better choices about which business areas to invest in.

As a banking exec, consider the following questions from your company’s point of view:

  • If there are no technical barriers preventing the adoption of a consolidated solution, are the real obstacles organisational?
  • Is your bank’s inability to evolve from a functionally siloed structure into a company where LoBs play nicely together, the issue preventing you from finding a consolidated solution?