BASEL III and BASEL IV Implementation, ALM and ICAAP and ILAAP Best Practice Process


From a supervisory perspective, there is maybe nothing more important than the principle of ensuring Banks’ viability in times of crisis

The window to this for the Regulator and indeed internally, is via two processes conducted separately, ICAAP and ILAAP.

The stakeholders of these processes, including the CEO, CRO, CFO, Head of ALM and Head of Treasury, are ultimately responsible for the entire process of risk management, as well as forming their own opinion on the effectiveness of the process.

This ultimately means the process has to be effective and efficient enough to be well articulated, on-demand and monitored regularly, or so you would think….

In reality, based on supervisory assessments, there are significant differences in the approaches taken by individual Banks and a needs for improvements at all Banks.

Fundamentally identical representation of the principles underlying ICAAP and ILAAP suggests that from a supervisory point of view both management areas have the same importance. From an ECB perspective, new principles coming into force as early as 2019, will drive ICAAP and ILAAP to an equal footing (and the trend will continue into the Regions and other supervisory powers). Their immediate integration and implementation is the responsibility of the institutions’ top management body, underlining their significance in driving a profit-oriented bank management

Institutions are required to adopt a forward looking approach ensuring all relevant risks are identified, managed and adequate contingency planning is put in place to mitigate all risks given any scenario.

Those objectives can only be achieved if an effective ILAAP and ICAAP architecture is put in place. All different elements contributing to the Firms risks have to fit coherently together and form an integral part of the institutions’ Liquidity and Capital risk management and reporting frameworks.

An end to end integrated platform ensuring complete coherence between regulatory compliance, internal stress testing, funds transfer pricing framework, funding planning and balance sheet management.

To ensure we are Forte Markets keep our finger on the pulse we’ve updated our Basel Implementation workshop for March 2018 to include Basel IV, ILAAP and ICAAP requirements and case studies. Check out the workshop details here.

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