risk management approach. The submission of the ICAAP is ultimately the assessment of bank’s its capital demand for supporting the existing risk profile and predicted risk profile of its business in accordance with its strategic plan. The outcome of the PRA SREP review which is a – – regulatory evaluation of the assessment of its capital demand - is the issuance of bank’s Individual Capital Guidance (ICG). The ICG will either confirm the capital demand, or bank’s as is more often the case set it at a higher level. Once the capital demand is set the bank must address the issue of capital supply, i.e. ensuring that the bank is appropriately capitalised. Although much of the capital supply mix is pre-determined by existing regulation, the ICG can also influence the make-up of the capital supply. Further detail on capital supply is set out in Appendix 2. There are two Pillars of capital assessment Pillar 1 which is formulaic and based on the CRR, – Pillar 2A which covers risk that are not adequately covered in Pillar 1, and Pillar 2B that generates an additional capital charge based on stress testing currently know as the Capital Planning – Buffer. CRD IV buffers come into force in January 2016 and are a key regulatory intervention in building bank resilience. There are four buffers above the Pillar 1 and Pillar 2 capital charge: Countercyclical Capital Buffer (CCB) The CCB applies to all banks (including RFBs). It is set by the FPC and is currently set at zero. What is interesting about the CCB is that the FPC has agreed reciprocal arrangements with other regulators to apply their CCB, such that a bank with £100m of exposure to borrowers based in Sweden must apply the Swedish regulator’s CCB.
risk management approach. The submission of the ICAAP is ultimately the bank’s assessment of its capital demand for supporting the existing risk profile and predicted risk profile of its business – in accordance with its strategic plan. The outcome of the PRA SREP review – which is a regulatory evaluation of the bank’s assessment of its capital demand - is the issuance of Individual Capital Guidance (ICG). The ICG will either confirm the bank’s capital demand, or as is more often the case set it at a higher level. Once the capital demand is set the bank must address the issue of capital supply, i.e. ensuring that the bank is appropriately capitalised. Although much of the capital supply mix is pre-determined by existing regulation, the ICG can also influence the make-up of the capital supply. Further detail on capital supply is set out in Appendix 2. There are two Pillars of capital assessment – Pillar 1 which is formulaic and based on the CRR, Pillar 2A which covers risk that are not adequately covered in Pillar 1, and Pillar 2B that generates an additional capital charge based on stress testing – currently know as the Capital Planning Buffer. CRD IV buffers come into force in January 2016 and are a key regulatory intervention in building bank resilience. There are four buffers above the Pillar 1 and Pillar 2 capital charge: Countercyclical Capital Buffer (CCB) The CCB applies to all banks (including RFBs). It is set by the FPC and is currently set at zero. What is interesting about the CCB is that the FPC has agreed reciprocal arrangements with other regulators to apply their CCB, such that a bank with £100m of exposure to borrowers based in Sweden must apply the Swedish regulator’s CCB.
Peter%20McCormack%20ICGFREL%20Dissertation%201443852.docx