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大浩浩的笔记课堂——FRM考试学习笔记120

2026-02-08 21:36:52

Topic 49 Capital Planning at Large Bank Holding Companies

1.The 7 principles of an effective capital adequacy process(CAP):

⑴sound foundation risk management

⑵solid resources-estimation methodologies

⑶effective loss-estimation methodologies

⑷sufficient capital adequacy impact assessment:

①balance sheet and RWAs

②allowance for loan and lease losses(ALLL)

③aggregation of projections

⑸comprehensive capital policy and capital planning

·特别注意！

·Federal Reserves capital plan rule mandates that bank holding companies(BHC,with total consolidated assets of $50 billion or greater) develop a capital plan and evaluate capital adequacy.

⑹robust internal controls

⑺effective governance

2.The process of capital adequacy process(CAP):

⑴risk management foundation:

①risk identification:

A.Senior management should regularly update and review the risk identification plan with special consideration for how their risk profiles might change under stress scenarios.

B.BHC should integrate the identified risk exposures into their internal capital planning processes.

C.key lesson:

Many financial companies simply failed to adequately identify the potential exposure and risk stemming from their firm-wide activities.

②risk evaluation:

A.on- and off-balance sheet positions

B.risk transfer and/or risk mitigation techniques

C.charges in institution´s risk profile due to portfolio quality

D.reputational risk

③risk diversification

⑵internal controls:

①scope of internal controls

②internal audit(play a key role):

An internal audit team should carefully scrutinize the internal control data.

③independent model review and validation

④policies and procedures

⑤ensuring integrity of results

⑥documentation

⑶effective oversight:

①boards:

BHCs should have boards with sufficient expertise and involvement to fully understand and evaluate the information:

A.board of directors:

To oversight responsibility and accountability.

B.board of reporting:

To approve a bank holding company(BHC)´s capital plan under the capital plan rules.

②senior management:

A.They should evaluate the internal capital plan on an ongoing basis.

B.It is responsible for ensuring that capital planning activities authorized by the board are implemented in a satisfactory manner and is accountable to the board for the effectiveness of those activities.

③documenting decisions

⑷capital planing:

①capital planing rule:

A.The Federal Reserve´s Capital Plan Rule and the associated annual Comprehensive Capital Analysis and Review(CCAR) emphasize the importance the Federal Reserve places on BHC´s internal capital planning processes,and on the supervisory assessment of all aspects of these processes.

B.These initiatives(CPR＆CCAR) have focused not just on the amount of capital that a BHC has,but also on the internal practices and policies.

②capital planing policy:

A.The policy should discuss the following:

It clearly define the principles and guidelines for capital goals issuance,usage,and distribution:

a/ the main factors and key metrics that influence the size,timing,and form of capital distribution

b/ the analytical materials used in making capital distribution decisions

c/ specific circumstances that would cause the BHC to reduce or suspend a dividend or stock repurchase program

d/ factors the BHC would consider if contemplating the replacement of common equity with other forms of capital

e/ key roles and responsibilities

B.capital goals and targets:

BHCs should also establish capital targets above their capital goals.

C.capital contingency plan:

Contingency actions should be flexible enough to work in a variety of situations and be realistic for what is achievable during periods of stress.

⑸BHC stress testing scenario design:

①scenario design and severity:

A.BHC designed stress scenario should reflect an individual company´s unique vulnerabilities to factors that affect its firm-wide activities and risk exposures,including macroeconomic,market-wide,and firm-specific events:

a/ loss estimation methodologies:

based on sound theoretical and empirical foundations

b/ combination of inputs:

develop loss estimates arising from operational risk

c/ probabilistic or deterministic approaches:

generate a wide range of stress scenarios

B.BHC stress scenarios should focus on unique situations of BHCs.

C.BHC stress scenarios should not feature assumptions that specifically benefit the BHC.

②variable coverage:

They are a set of variables should be sufficient to address all material risk.

③clear narratives:

They are how the scenario addresses the particular vulnerabilities and material risks facing the BHC.

⑹Estimation methodologies for losses,revenues and expenses:

①general expectations:

A.establishing a quantitative basis for enterprise-wide scenario analysis

B.qualitative projections,expert judgement,and adjustments

C.conservatism and credibility

D.documentation of estimation practice

②loss-estimation methodologies:

A.retail and wholesale credit risk:

a/ data and segmentation

b/ common credit loan loss-estimation approaches:

△expected loss approach:

PD,LGD,EAD

△rating transition models:

·using a robust time series of data

·using well-calibrated,granular-risk rating systems

△roll-rate models:

·It should incorporate conservative assumptions.

·It has weak predictive power outside the near future.

△vintage loss models:

There is an challenge to construct,calibrate and validate.

△charge-off models

△scalar adjustment

c/ available-for-sale(AFS) and held-to-maturity(HTM) securities

B.operational risk:

a/ internal data collection and data quality

b/ correlation with macro economic factors

c/ common operational-loss-estimation approaches:

△regression models(loss frequency＆loss severity)

△modified loss-distribution approach(LDA)

△scenario analysis

△historical averages

△legal exposures

C.market risk and counterparty credit risk:

a/ probabilistic approach vs.deterministic approach:

	probabilistic approach	deterministic approach(rely on)
definition	It is an approach that can generate scenarios that are potentially move severe than what was historically experienced.	It is an approach to demonstrate that they have considered a range of scenarios that sufficiently stress their key exposures.
generation	It generates a distribution of potential portfolio level P/L.	It generates a distribution of portfolio level losses under a specific stress scenario.
strength	It provides useful insight into a range of scenarios.	It is easier to communicate to management and the board.
weakness	1.It is complex and lacks transparency; 2.It is difficult to communicate.	It uses limited set of scenarios and may miss certain scenarios that may result in large losses.

b/ BHCs are using deterministic approaches that used a 3-step process to generate P/L losses under a stress scenario:

△design and selection stress scenario

△construction and implementation of the scenario(translation to risk-factors model)

△revaluation(and aggregation) of position and portfolio-level P＆L under the stress scenarios

·特别注意！

·BHC evaluates the combined impact of both loss estimates and capital resources in light of the stated goals with expect to capital level ＆ composition.

c/ counterparty and issuer defaults

d/ risk mitigants and other assumptions(conservative)

③PPNR,projection methodologies:

A.definition:

It is the capital plan rule requires BHCs to estimate revenue and expenses over the nine-quarter planning horizon.

B.consideration:

the general considerations for robust PPNR projections

C.practices:

Observed PPNR projections practices:

a/ relied heavily on management judgement

b/ relied heavily on baseline estimate

c/ interest income and expenses: