RWA And Capital Constraints: From Analysis To Solutions


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By Ayis Panayi
Digital Media & PR Executive
Banks’ XVA optimisation and Front Office Capital are placed under pressure from regulations such the FRTB and SA-CCR and while financial institutions have to align their methods to such regulations, computational and modelling methods are being constantly revisited.
In our effort to address such challenges and write down the best practices for overcoming them, we spoke with one of the keynote speakers for the 15th Edition XVA Series Front Office Capital, Funding, And XVA Optimisation Conference which is taking place in London UK on the 16-18 of November, Martin Doucet, Managing Director, Global Funding and Treasury Regulatory Optimisation at the National Bank of Canada.
Through this insightful interview, Martin elaborated on the 3 main vectors for optimizing RWA and Capital Optimisation, challenges with managing capital constraints and effects on pricing, sourcing and utilising data for efficient calculation strategies to manage capital floor constraints. Enjoy reading this interview.
Disclaimer: The views and opinions expressed herein are those of the respondent and do not necessarily reflect the position of the National Bank of Canada.
1) What vectors do banks have to consider when optimising their RWAs and Capital?
On a simple form, RWA and Capital optimisation are built around 3 main vectors: the scope of the regulatory framework, a good understanding of the position’s risk, the process around the position, and its ultimate capital treatment. Banks need to value all vectors: not just the capital requirements from the local jurisdiction and the means at disposal to mitigate the risk, for example, but also where the exposure will be booked, and what is the approach that will be associated with it. Usually, systems limitations or model suitability might supersede any capital efficiency…..  Article continues here.

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