The client, a banking institution specialised in financing companies, requested Avantage Reply’s assistance to prepare and provide recommendations for the ICAAP and ILAAP reports, and then based on the recommendations, align the reports with the regulatory requirements.
The main goal was to prepare the annual reports of the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP), based on the data provided by the bank for the year 2020.
The objective of these reports is to provide an analysis of the bank’s exposure to all significant risk factors (e.g. liquidity risk, credit risk, market etc.) and explain how the bank manages these different risks and demonstrate that the bank has sufficient capital and liquidity buffers to support its business model even in a stressed environment.
The project team had to integrate new developments in the bank’s business model. In particular, the introduction of new credit guarantees, to complement the offering in support of the economy in the context of the COVID-19 crisis, into the ICAAP and ILAAP. In addition, new regulatory changes had to be considered; such as the CSSF’s transposition of several European supervisory guidelines into local practices (cf. CSSF circulars 20/753 and 20/762).
The bank’s framework had to be re-designed around the concepts of ‘economic’ and ‘normative’ perspectives. The latter was formalised with the inclusion of an impact assessment of looming regulatory changes including the Basel IV reform.
The bank's management was provided with a thorough assessment of its capital and liquidity adequacy under the baseline and stressed scenarios. The risk quantification process was strengthened and made more robust. The report was updated to take into account new supervisory expectations. Finally, an impact assessment of the Basel reform was also presented to shed light on the expected RWA evolution driven by the new standardised approaches for credit, market and operational risks.
Public Banking institution specialized in the financing of companies.