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Cognizant 20-20 Insights

Building a Holistic Capital


Management Framework
Embedding the strategic use of capital into banks internal cultures
will help them gain competitive advantage.

Executive Summary Where Does Capital Generate Value?


The 2008 financial crisis induced banks to A Strategy & Performance
rethink their capital planning approach and Management Perspective
identify new ways to extract shareholder value Performance management allows businesses to
in an increasingly risk-averse environment. decide which product or business lines to direct its
A lower risk appetite and increased regulatory resources to, so as to maximize profitability. ROE1
capital requirements have imposed new con- is a common way to measure the performance of
straints forcing banks to optimize capital alloca- a bank. However, ROE does not incorporate the
tions, which in turn have required some difficult risk element that the equity is exposed to, and
business decisions. hence it can be misleading. Risk-adjusted perfor-
mance management is a method to allocate risks
We believe capital management is not a one- across the business on a consistent basis in terms
dimensional problem. Developing a holistic capital of their contribution to capital requirements.
management framework is a new imperative for
Given the constraints of capital availability and the
banks.
cost considerations, banks must assess whether
In this white paper, we examine key develop- promoting certain business lines that generate
high returns is indeed generating value for the
ments and highlight the challenges facing banks
business if the investment has to be financed at
that are looking to develop a holistic capital
a greater cost and by meeting more stringent
management framework. We analyze the impact
regulatory requirements.
of regulations on capital planning decisions. We
also lay out the capital management value chain, To maximize shareholder wealth, banks undertake
and highlight the need for a strategic transfor- capital allocation a process of planning, allocating
mation of existing processes and systems. and managing capital for a variety of products to

cognizant 20-20 insights | march 2017


Holistic Capital Management Framework
2. Economic Capital
Position Risks Other Risks
(FX, IR, Equity and (e.g. operational risk)
Commodity Risks)
The potential unexpected Risks not captured by
loss in economic value of the position risks; these
the banks portfolio of its include operational and
1. Strategy & Performance Management positions over a one-year pension risks. 3. Regulatory Capital
horizon.
Market, Credit and
Performance Measures Risk Appetite Pillar II Requirements
Operational Risk

Set performance
Definition of the risk Banks should respond to Qualitative and
measures (e.g., ROE) to 2. Economic
profile needed to regulatory requirements quantitative assessment
drive decision-making.
support the banks risk Capital that have an impact on of whether banks have
Embed risk-adjusted capacity and its overall their RWAs (e.g. ,CVA sufficient capital to
performance into strategy. charge, IRRBB, FTRB). continue operations.
decision-making.

1. Strategy &
Performance 3. Regulatory
Capital Capital
Management
Management

5. Recovery and Resolution Plans 


4. Risk-Based Product Pricing

Measures for Monitoring 5. Recovery Reflecting the Riskiness of the


Liquidity Distress 4. Risk-Based Product in the Trade
and
Product
Maintain sufficient liquid assets to Resolution
Pricing Embedding risk in products pricing in
retain depositor confidence and Plans order to ensure that it covers the
maintain a buffer over regulatory and
costs associated with hedging CVA
internal assessment of liquidity
capital charge.
requirements.

Figure 1

ensure that the return on investment outstrips the at a specified confidence level, within a chosen
costs. To achieve success, banks must be able to time horizon. Hence, it can be used to gauge the
appropriately balance growth, risk and return to amount of risk a bank is exposed to and can be
remain in line with the interests of investors. seen as capital that a bank needs to hold on its
balance sheet to support those risks and stay
Clearly, capital management should be increas- solvent. Since ECap incorporates not just a banks
ingly embedded in evaluating decision-making,
capital position but also the underlying risk, it is a
costs, performance and incentives per group,
very useful tool for capital management.
business and product. Performing such an
analysis would require identifying and continu-
ously monitoring a set of metrics that use the
When considering a performance
same set of enterprise data and are consistent management framework that
and comparable across business groups, lines and captures the risk underlying
products. However, metrics are often unique to
each business line or product, which makes com-
assets, one way of measuring that
parisons difficult. The solution is a standardized risk is by understanding economic
performance management framework. capital requirements.
How Much Capital? An Economic Banks have had to increasingly focus on two
Perspective areas:
When considering a performance management
framework that captures the risk underlying Which risk-driven business area/project should
assets, one way of measuring that risk is by we channel our capital to?
understanding economic capital requirements.
Across business areas, is the capital sufficient
The capital possessed by a firm protects it against to absorb the risk of insolvency?
insolvency in case the difference in value between
its assets and its liabilities decreases. Economic ECap can support this dual agenda as it can be
capital (ECap) represents an estimate of the used to develop risk-driven profitability measures
worst possible decline in the institutions capital to compare businesses but also produce a single

cognizant 20-20 insights 2


Benefits and Challenges of Using Economic Capital Metrics
with Regulatory Capital Metrics 2. Economic Capital

Benefits Challenges
Complements Allows risk data Allows for May require a ECap models Management
regulatory to be aggregated comparison rethink of IT traditionally complexities
capital at group level between strategy difficult to from parallel use
measures businesses/ back-test of ECap and
products RegCap metrics

ECap is being ECap metrics are ECap metrics can be Ecap metrics are to Intensive Regulatory capital is
increasingly used to flexible and can be calculated at a be calculated both back-testing of reported to the
measure capital calculated across business level. This at a business level models is needed to regulator at group
buffer. Banks must geographies and allows for and across ensure the level while ECap
maintain it in businesses and risk-adjusted geographies to robustness of the metrics can be used
addition to hence, can present performance obtain an aggregate model, but this could at business/product
regulatory capital the aggregate view measure and view of risk results. be challenging due level.
to avoid falling of risk that comparison between Supporting this to unavailability of
short of regulatory regulators seek. different businesses massive risk data and longer time
requirements. which helps architecture change horizons.
management decide may require a
capital allocation for rethink of banks IT
businesses. strategy.

Figure 2

aggregate figure for all risk types, products and economic value added (EVA).2 EVA is positive if
business units. the absolute return on an asset is greater than
the risk-weighted cost of capital needed to fund it.
The risk adjusted return on (economic) capital Hence EVA identifies which projects, products or
(RAROC) is the normative, risk-based leverage business lines create value for shareholders.
measure that allows comparison between
different business areas and also enables banks An increased focus on risk management and
to determine whether high return assets and the regulatory spotlight on banks internal risk
management practices have prompted a revival
Incorporating an ECap analysis into in ECap model adoption. It also has an important
role under Basels Pillar II as it represents a banks
the capital management framework view of the amount of capital required to support
will, however, allow banks to gain its business activities.
a more holistic view of their needs ECap metrics bring their own challenges, and
and generate significant value banks are weighing the benefits against the
in the long run. challenges (see Figure 2).

investments are contributing toward higher Incorporating an ECap analysis into the capital
economic capital. It addresses the shortcomings management framework will, however, allow
of regulatory capital, which is usually calculated banks to gain a more holistic view of their needs
at the company level and doesnt allow compara- and generate significant value in the long run.
tive analytics to be performed across business
areas. Executives can use RAROC to make better A Regulatory Perspective
decisions on complex problems. It can be used ex In contrast to economic capital, the framework
post to decide which investments are generating for regulatory capital is laid out by regulators and
target profits or exante to set transaction prices is meant to ensure the soundness of the banking
or determine which business lines deserve more system, protect depositors and prevent financial
resource injections that could include capital. A crises. Increased capital and funding costs along
similar performance measure related to ECap is with the heavy investment in infrastructure to

cognizant 20-20 insights 3


Regulatory timelines 2. Economic Capital

Overview of Regulatory Timelines


Theme Sub-Theme 2016 2017 2018 2019
Core Tier 1 4.5% 4.5% 4.5% 4.5%

Tier 1 6.0% 6.0% 6.0% 6.0%

Capital Tier 2 2.0% 2.0% 2.0% 2.0%

Countercyclical Buffer 0.625% 1.25% 1.875% 2.5%

Conservation Buffer 0.625% 1.25% 1.875% 2.5%

LCR 70% 80% 90% 100%

NSFR Observation period 100% 100% 100%


Liquidity
Tools include Concentration of funding, Contractual maturity
Liquidity Risk tools mismatch, LCR by significant currency, available unencumbered assets

Leverage Leverage ratio Tracking ratios components 3% 3% 3%

BIS Consultative Documents were issued in 2012/2014 for FRTB.


Trading Book FRTB Updated Market Risk standards issued in January 2016.
The deadline for this framework to be implemented is in 2019

BIS Consultative Documents were issued in 2015 for IRRB Updated


Banking Book IRRB Basel IRRBB standards were issued in April 2016.
Banks are expected to implement the standards by 2018

PRA expects full compliance of all ILAAP documentation from


ICAAP, ILAAP, October 2016 onwards.
Pillar 2 Stress Testing
Z&^d For US IHCs that meet the asset threshold(total consolidated assets
Requirement of $50 billion or greater) are required to submit first capital plan to
Federal Reserve in January 2017

   


Figure 3

deal with regulatory changes have put a strain on well as a stricter definition of what constitutes
profitability and brought capital management to regulatory capital. The total capital ratio3 under
the forefront. Basel III remains 8% of RWA but its composition
has changed.
Despite the extended implementation timeframe,
many financial institutions are tackling the Regulatory capital comprises Common Equity
balance sheet consequences of the new regime Tier-1 capital (including Core Tier 1) and Tier 2
only now. An overview of all regulations that but common equity requirements have increased.
may affect responses in capital management Basel III also introduced a capital conservation
is provided in Figure 3. The regulatory initia- buffer of 2.5% of RWA as well as a countercyclical
tives have tried to tackle various elements of capital buffer in the range of 0 to 2.5% to address
the banking system and their multipolar nature excessive build-up of systemic risk.
requires that banks conduct impact analysis on
different fronts. Under Basel III, the predominant source of Tier 1
capital is common shares and retained earnings.
Basel III and Beyond In order to qualify as common equity, capital
Components of Capital has to be recognized under both accounting and
BASEL III has introduced stricter capital insolvency law as own funds and must not have
standards by increasing the quality of capital that obligatory distributions. Share premium accounts
banks are to set aside for risk management as can be considered common equity only if the

cognizant 20-20 insights 4


shares that gave rise to the premia were eligible Thus, comprehensive capital management that
as common equity. As for instruments other than incorporates capital planning, calculation and
common equity to be included in Tier 1, specific strategic optimization has become inevitable for
criteria have been introduced to ensure these all banks. Banks will need to measure and monitor
are loss absorbent on a going-concern basis. In the quality of capital defined under the regulatory
particular, this means that dated and innovative initiatives, and this may require an analysis of
Tier-1 instruments will be phased out. Regulatory data and system requirements to support the
adjustments set out in Basel do not apply in fair review.
value changes of additional Tier 1 and Tier 2
capital instruments that are recognized on the Counterparty Credit Risk (CCR)
balance sheet. Guidance from each competent During the 2008 crisis, two-thirds of the losses
authority is available on what is considered an generated from counterparty risk was due to
incentive to redeem for additional Tier 1 capital credit spread and market variables movements.
(e.g., a call option combined with an increase in So the CCR charge under Basel II, which was not
the credit spread of the instrument if the call originally designed to consider market movements
is not exercised or a call option to convert the of the exposure, has now been redesigned by
instrument into shares if the call is not exercised). the Basel Committee to adopt a further capital
charge, the CVA charge, to cover for credit spread
Deductions from capital (e.g., for goodwill and volatilities and market volatility of the CCR. The
intangibles, minority interests, deferred tax CVA charge materially increases the capital
assets, defined benefit pension fund assets, requirements for OTC derivatives activities and
shortfall of provisions to expected losses for IRB has attracted considerable attention from banks
institutions) and prudential filters have been and regulators alike.
harmonized on a global basis and are applied
almost entirely to common equity. Regulations Standard and advanced CVA are the two common
require that banks deduct investments in capital methods used by banks to calculate the CVA
instruments of other institutions from the class of capital charge. The standardized approach
component of capital for which the capital would allows less flexibility in incorporating market
qualify if issued by the bank itself. implied data. It should theoretically result
in a higher capital charge compared to the
advanced approach due to regulatory implied
Tougher capital requirements will alignment between risk weights and external
primarily impact areas such as ratings and other more conservative VaR calibra-
sales and trading, securitizations, tions. However, the standardized approach also
removes complexities associated with market
securities lending and OTC risk VaR methodologies/IMM approval and
derivatives. testing. The standardized CVA risk capital charge
methodology requires the development of a
Basel III has simplified and reduced Tier 2 capital number of heuristic approaches to estimate the
by eliminating Upper Tier 2 from the capital exposure at default, the discounted notional of
structure. Tier 2 capital ensures loss absorption single name and index CDS hedges, the effective
in case of liquidation (going-concern) since banks maturity of the transaction with the counterparty
must hold further debt securities that can convert and the maturity of the hedges for index CDS.
to equity in times of stress.
Calculation of the advanced CVA RWA is a market
Tougher capital requirements will primarily risk computation and may be used by institutions
impact areas such as sales and trading, securiti- that have regulatory approval to use the internal
zations, securities lending and OTC derivatives. model method (IMM) for CCR and specific VaR
Institutions may choose to exit capital-intensive model approval for market risk capital. If the
areas of business (OTCs, commodities) where VaR models use a sensitivity-based approach,
levels of return on higher capital levels dilute the credit spread values in the 1st and 2nd order
shareholder value. sensitivities are the current levels as of valuation
dates for both the stressed and unstressed VaR
Higher capital costs have forced banks to capital component of the advanced CVA. Hence,
reconsider their business models unless they are no additional period of stress may be required for
able to manage both elements of the capital ratio. credit spread parameters in determining future

cognizant 20-20 insights 5


counterparty EE profiles. Calculation of effective Argues for a move from VAR to ES for market
EPE profiles and EAD are common on both risk calculation to capitalize for loss events in
methods and may not have been subject to any the tail of the P&L distribution.
adjustments arising from credit protection that
the bank intends to include as an eligible hedge
Provides validation criteria that banks must use
to approve the soundness of internal models,
in the CVA risk capital charge. However, the use and where found inappropriate, banks will be
of other types of credit risk mitigation such as forced to use standardized models.
collateral or netting set that reduce the effective
EPE and EAD amounts in the CCR framework The Basel Committee also proposes a revised,
can be maintained when feeding the risk capital more risk-sensitive standardized market
charge. Also, the VaR model for eligible CDS and approach that includes calculation of the risk
sensitivities based method (delta and gamma),
CDS swaptions should capture their nonlinear
the default risk charge and the residual risk
risk. Banks will need to assess which model is best
add-on.
suited and evaluate if legacy systems are capable
of supporting those models.
Banks are being urged to implement
Market Risk a robust risk management
Interest Rate Risk in the Banking Book (IRRBB) framework to identify, measure,
The post-crisis period witnessed record low monitor and report IRRBB.
interest rates to boost the economy. Policy
makers are now concerned about the impact Compliance with FRTB would require extensive
when interest rates rise. Hence banks are being interaction between multiple desks trading,
urged to consider keeping more capital aside market risk, analytics, regulatory reporting,
to deal with increases in interest rates. Based technology, finance, project management and
on a set of qualitative principles largely backed business analysts. This is both time-consuming
by stress testing and internal audits, banks are and expensive. Banks will have to invest heavily
required to manage rate fluctuations. The Basel in data management, business process reengi-
Committee was considering bringing interest neering and technology. However, some argue
rate risk in banking book (IRRBB) under Pillar that FRTB provides an opportunity for banks to
1 but it published new standards for IRRBB in enhance their system capabilities and replace
April 2016 and concluded that IRRBB will remain their legacy IT infrastructure.
(will be captured) in Pillar 2. Banks are expected
to implement an enhanced Pillar 2 approach to Liquidity Risk
identify, measure, monitor and report IRRBB. This The liquidity measures mandated by Basel III aim
involves adequate procedures, policies, systems to reduce reliance on unstable sources of funding,
and controls. Banks are also required to assess highlight the importance of managing funding
and measure IRRBB and the impact of interest costs and encourage banks to review the com-
rate shocks on economic value (NPVs of future position of assets and liabilities on their balance
cash flows and interest income) of assets, off- sheets. Liquidity coverage ratio (LCR)4 and net
balance sheet items and liabilities and on earn- stable funding ratio (NSFR)5 will likely drive
ing-based measures (change to future gains or banks away from sourcing shorter-term funding
losses) of the banks. and toward longer-term funding arrangements.
This will also increase the competition for retail
Fundamental Review of the Trading Book deposits, affect funding costs and margins, and
(FRTB) result in lower RWAs.
An analysis of FRTB reveals that it:
LCR reduces complexity but interpretive guidance
is necessary for all banks to follow a consistent
Proposes standardized criteria for defining the implementation approach. Key examples of high
boundary between the trading and banking
books. quality liquid assets (HQLA) implications that
banks will face are as follows:
Places restrictions on changing this classifica-
tion to provide better alignment in the quanti- Unused portions of eligible HQLA assets,
fication of capital across the industry as well already pledged, that are part of the collateral
as reducing arbitrage between banking and pool can be used toward the banks stock of
trading books. HQLA with associated haircuts considered.

cognizant 20-20 insights 6


Where the bank cannot determine which quantity, type, currency and location of available
collateral remains unused it may be assumed unencumbered assets. These include market-
that these assets are encumbered in order of related monitoring tools that allow monitoring of
increasing liquidity value. market-wide information (e.g., market data from
debt markets or specific products such as secu-
Lower-rated (BBB+ to BBB-) sovereign and
ritized products), financial sector information
central bank securities that cannot be included
(to check how the financial sector is reacting to
in the definition of Level 1 assets may be
broader market movements) and bank-specific
included in the Level 2B assets with a 50%
information (to gauge market confidence in and
haircut but will not constitute more than 15%
risks associated with specific banks).
of level 2B assets.
Leverage Ratio
The liquidity measures mandated Basel III introduced a non-risk-based leverage
by Basel III aim to reduce reliance ratio to complement the risk-based capital
requirements so as to reduce the excessive
on unstable sources of funding, buildup of on- and off-balance sheet leverage.
highlight the importance of managing This will diminish destabilizing deleveraging
funding costs and encourage banks to exercises during periods of stress. The leverage
ratio measures the relationship between the
review the composition of assets and capital base and the assets of an institution. The
liabilities on their balance sheets. ratio is designed to put a floor under the buildup
of leverage in the banking system as well as to
Non-0% risk-weighted sovereign/central bank introduce additional safeguards against model
debt securities included in the Level 1 assets risk and measurement errors by supplementing
and the amounts of foreign currency exposures the risk-based capital requirements with a simple,
should be limited to the jurisdiction of the transparent measure of risk. In addition, off-
issuing sovereign/central bank. balance sheet positions shall be included in the
denominator. In contrast to capital requirement
Common equities, which are exchange-traded calculation and accounting, collateral and netting
and are part of a major market index within
for derivative and repo transactions will not be
the home jurisdiction of the bank, should be
considered. To ensure international comparability
denominated in the same currency.
of the ratio, it will be adjusted for differences in
NSFR enables better assessment of funding accounting standards.
risk across on- and off-balance sheet items, and
The exposure measure is the sum of five
promotes funding stability by reducing reliance on
components:
short-term wholesale funding. This ratio reduces
the possibility that a disruption at a banks On-balance-sheet exposures, including collateral
standard source of funding will impact its liquidity for derivatives and securities financing transac-
position to cause the banks failure and trigger tions but not the corresponding assets as they
systemic risk (Basel Committee). The amounts form the next two points.
of available and required funding are calibrated
to reflect the presumed degree of stability of Derivative exposures accounts for replace-
ment cost, potential future exposure and
liabilities and liquidity of assets. The calibra-
adjustment for certain collateral.
tion promotes the use of more stable, long-term
sources of funding. This calibration reflects which Securities financing transaction exposures
stable funding type and counterparty is used (e.g., accounts for counterparty credit exposure
longer term is assumed to be more stable) to fund related to repos, reverse repos, securities
the resilient credit creation of the asset side of borrowing/lending and margin lending trans-
the balance sheet. actions.

The Basel Committee has proposed a set of sup-


Other off-balance-sheet items.
plementary monitoring tools to assist supervisors Leverage ratio acts as a backstop measure
with the analysis of bank-specific and system-wide to the risk-based capital requirements and
liquidity risk trends. Additionally, the committee therefore provides added protection against
has introduced tools to monitor data on the model risk and measurement error.

cognizant 20-20 insights 7


The implementation of the leverage ratio will must be consistent with their risk appetite and
entail changes to regulatory reporting processes with their overall approach for measuring and
and potentially require system changes. managing liquidity and funding risk. ILAAP
involves a comprehensive stress testing on
Revisiting Pillar 2 variables that affect liquidity risk, assessment of
The purpose of the second pillar under Basel is intraday liquidity risk, the banks ability to meet
to supplement existing regulatory capital require- its intraday liability requirements, assessing its
ments for banks capital planning process and liquidity risk governance framework and a robust
risk management. Pillar 2 guidance intends to transfer pricing system in place to ensure that
help banks better identify, assess, manage and costs, benefits and risks are fully incorporated
mitigate risks in their internal capital adequacy into the banks product pricing and incentives.
assessment process (ICAAP). Pillar 2 should
exceed Pillar 1 capital requirements so that Banks will be forced to move further
all risks are adequately covered. The ICAAP
process should be commensurate with the size away from holding risky and costly
and complexity of the banks business as well as assets (e.g., OTC derivatives) on their
its risk appetite. A supplemental guidance was balance sheet, and will reshape their
issued by the Basel Committee to support their
ICAAP exercise. It addresses the following areas:
strategies toward client businesses.

Risk concentrations. U.S. intermediate holding companies (IHCs) with


$50 billion or more in total consolidated assets
Off-balance-sheet exposures with focus on
are subject to assessments by bank regulators to
securitization.
check if the banks have effective capital planning
Valuations. processes and sufficient capital to absorb losses
Sound stress-testing practices. during stressful conditions. The assessment
includes the comprehensive capital analysis and
ICAAP should incorporate stress testing to review (CCAR) and Dodd-Frank Act stress testing
complement other processes such as setting risk (DFAST).
appetite and assessing economic capital so that
the bank has the shock absorption capability to CCAR evaluates an IHCs capital adequacy, capital
adequately protect against severe stress events. distributions and capital adequacy processes. For
The banks capital planning should incorporate the annual CCAR submission, IHCs are required to
rigorous and forward-looking stress testing in assess capital adequacy under three supervisory
order to withstand uncertain market conditions scenarios provided by the FRB (baseline, adverse
and volatility over time. Banks should also assess and severely adverse), as well as at least two
their capital adequacy under stress conditions internally developed scenarios (baseline, severely
against a variety of capital ratios (e.g., RWA, adverse). As part of CCAR, the Federal Reserve
Tier2). evaluates whether IHCs have sufficient capital to
continue operations through times of economic
Banks will be forced to move further away from and financial market stress and whether they
holding risky and costly assets (e.g., OTC deriva- have robust, forward-looking capital planning
tives) on their balance sheet, and will reshape processes that account for their unique risks.
their strategies toward client businesses. This As such, banks have to perform key tasks to
will impact banks profitability and require them be compliant with CCAR: conduct stress tests
to transform their operating models. Capital based on relevant scenarios; ensure a control
management will also require improvements and and governance structure is in place to reduce
upgrades to systems used for stress testing and risks; and enable accurate and timely reporting of
back testing. annual, quarterly and monthly reports.

Similar to ICAAP, Pillar 2 addresses the banks DFAST is a complementary exercise to CCAR
internal liquidity adequacy assessment process that assesses whether financial institutions have
(ILAAP). The bank is required to undertake an sufficient capital to absorb losses and support
annual assessment of its liquidity and funding operations during adverse economic conditions.
risk across different time horizons in accordance A snapshot of the CCAR taxonomy indicates that
with existing ILAA and CRDIV rules. Banks ILAAP these developments will significantly increase

cognizant 20-20 insights 8


Snapshot of CCAR Taxonomy
Schedules that need to be submitted as part of the annual FRT-14A report and financials reporting impact
Report
Schedule Constituent Worksheets R E L X A+L C
Id
FR Y-14A Summary Cover Sheet
Income Statement
Balance Sheet
Legend
1. Capital CCAR and 2. Capital DFAST
Standardized RWA R Revenue
Retail Balance and Loss Projections E Expense
Retail Repurchase
Loss (impairments,
ASC 310 30 L allowance, charge-offs,
reserves incl.)
Projected OTTI for AFS Securities and HTM by Security
Risk Exposure
Projected OTTI for AFS and HTM Securities by Portfolio (All eligible assets for
X
OTTI Methodology and Assumptions for AFS and HTM Securities by Portfolio RWA calculations)
Projected OCI and Fair Value for AFS Securities A+L Assets and Liabilities
AFS and HTM Fair Market Value Sources by Portfiolio C Capital

Trading
Counterparty Risk
Operational Risk Scenario Inputs & Projections
PPNR Projections
PPNR Net Interest Income
PPNR Metrics
Scenario Supervisory Baseline Scenario
Supervisory Adverse Scenario
Supervisory Severely Adverse Scenario
BHC Baseline Scenario

Additional Scenario
Regulatory Capital Transitions Cover Sheet
Capital Composition
Exceptions Bucket Calculator
Advanced RiskWeighted Assets
Standardized RiskWeighted Assets
Leverage Exposure
Planned Actions
Regulatory Capital Instruments Schedule C
Operational Risk BHC Operational Risk Historical Capital
Legal Reserves Reporting

Measures used against reporting schedules/worksheets


Measure Name Schedule ID Report Schedule Worksheet
Equity Delta Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity by Geography
Equity Gamma Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity by Geography
Profit/(Loss) from % Change in
Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity by Geography
Country Equity Prices
Equity Vega Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity by Geography
Profit/(Loss) from changes in Spot/Vol Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity Spot-Vol Grid
Equity Vega post vol shock Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity Spot-Vol Grid
Equity Delta post spot shock Q FR Y-14Q Trading, PE and Other Fair Value Assets Equity Spot-Vol Grid
Equity Gamma post spot shock Q FR Y-14Q Measure
Trading, PE and Other Fair Value NameEquity Spot-Vol Grid
Assets Schedule ID Report Schedule Worksheet
Equity Vega post spot shock Q FR Y-14Q Common
Trading, PE and Other Fair Value Equity
Assets Tier 1Spot-Vol
Equity Capital Grid D.1 FR Y-14A Regulatory Capital Transitions Capital Composition
Adjustments and deductions associated with commo D.1 FR Y-14A Regulatory Capital Transitions Capital Composition
Profit/(Loss) from a -1% change in dividends Q FR Y-14Q Trading, PE and Other Fair Value Assets Other Equity
Conditional AOCI related adjustments D.1 FR Y-14A Regulatory Capital Transitions Capital Composition
FX Delta Q FR Y-14Q Trading, PE and Other Fair Value Assets
Additional tier FX Spot Sensitivities
1 capital D.1 FR Y-14A Regulatory Capital Transitions Capital Composition
FX Gamma Q FR Y-14Q Trading, PE and Other Fair Value Assets FX Spot Sensitivities
Other capital instruments (e.g, issuance, repurchase D.1 FR Y-14A Regulatory Capital Transitions Capital Composition
Profit/(Loss) From % Change in Spot Price in Q FR Y-14Q Significant
Trading, PE and Other Fair Value Assetsinvestments in the capital of unconsolida D.2
FX Spot Sensitivities FR Y-14A Regulatory Capital Transitions Exceptions Bucket Calculator
FX Lognormal Vega Q FR Y-14Q Mortgage
Trading, PE and Other Fair Value servicing
Assets assets
FX Vega D.2 FR Y-14A Regulatory Capital Transitions Exceptions Bucket Calculator
Aggregate of items subject To the 15% limit (signifi D.2 FR Y-14A Regulatory Capital Transitions Exceptions Bucket Calculator
Directional Risks: DV01 Q FR Y-14Q Trading, PE and Other Fair Value Assets Rates DV01
Advanced Approaches Credit Risk: Credit RWA D.3 FR Y-14A Regulatory Capital Transitions Advanced RiskWeighted Assets
P/(L) from a Parallel Move in Rates (bps) Q FR Y-14Q Trading, PE and Other Fair Value Assets
Advanced Rates DV01
Approaches Operational Risk: Operational D.3 FR Y-14A Regulatory Capital Transitions Advanced RiskWeighted Assets
Basis Risks: DV01 Q FR Y-14Q Advanced
Trading, PE and Other Fair Value Approaches
Assets Rates DV01Operational Risk: Market RW D.3 FR Y-14A Regulatory Capital Transitions Advanced RiskWeighted Assets
Interest Rate Normal Vegas Q FR Y-14Q Standardised
Trading, PE and Other Fair Value Assets Risk Weighted
Rates Vega Assets: Credit RWA D.4 FR Y-14A Regulatory Capital Transitions Standardized RiskWeighted Assets
Standardised Risk Weighted Assets: Market RWA D.4 FR Y-14A Regulatory Capital Transitions Standardized RiskWeighted Assets
Inflation Delta Q FR Y-14Q Trading, PE and Other Fair Value Assets Other Rates
Leverage Exposure for Tier 1 Leverage Ratio D.5 FR Y-14A Regulatory Capital Transitions Leverage Exposure
Cross-Currency vs. USD Basis Q FR Y-14Q Trading, PE and Other Fair Value Assets
Leverage Other for
Exposure Rates
Supplementary Leverage Ra D.5 FR Y-14A Regulatory Capital Transitions Leverage Exposure
Delta Q FR Y-14Q Trading, PE and Other Fair Value Assetsto Advanced
(Applicable Energy Approaches BHCs Only)
Gamma Q FR Y-14Q Derivative
Trading, PE and Other Fair Value Assetsexposures
Energy D.5 FR Y-14A Regulatory Capital Transitions Leverage Exposure
Vega Q FR Y-14Q Repo style transactions
Trading, PE and Other Fair Value Assets Energy D.5 FR Y-14A Regulatory Capital Transitions Leverage Exposure
Other off-balance sheet exposures D.5 FR Y-14A Regulatory Capital Transitions Leverage Exposure
Delta Q FR Y-14Q Trading, PE and Other Fair Value Assets Metals
Capital and total leverage exposures D.5 FR Y-14A Regulatory Capital Transitions Leverage Exposure
Gamma Q FR Y-14Q Trading, PE and Other Fair Value
ActionAssets Metals
Description D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Vega Q FR Y-14Q ActionAssets
Trading, PE and Other Fair Value Type Metals D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Delta Q FR Y-14Q Exposure
Trading, PE and Other Fair Value TypeAgs and Softs
Assets D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
RWA Type D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Gamma Q FR Y-14Q Trading, PE and Other Fair Value Assets Ags and Softs
Common Equity Tier 1 D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Vega Q FR Y-14Q Trading, PE and Other Fair Value
Tier 1 Assets Ags and Softs D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Delta Q FR Y-14Q Trading, PE and Other Fair Value Assets Diversified Commodity Indices
RWA Standardised D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Gamma Q FR Y-14Q RWA Advanced
Trading, PE and Other Fair Value Assets Diversified Commodity Indices D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Vega Q FR Y-14Q Total Asset
Trading, PE and Other Fair Value AssetsforDiversified
Leverage Ratio
Commodity Indices D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Total Leverage D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Exposure for
Supplementary
Leverage Ratio
Balance Sheet impact D.6 FR Y-14A Regulatory Capital Transitions Planned Actions
Operational risk capital by BHC unit-of measure E.1 FR Y-14A Operational Risk BHC Operational Risk Historical Capital
Total Legal Reserve Balance E.2 FR Y-14A Operational Risk Legal Reserves Reporting
Total Repurchase Litigation Reserve Balance E.2 FR Y-14A Operational Risk Legal Reserves Reporting
Losses associated with loans held for investment at A.1.a FR Y-14A Summary Income Statement
Real Estate Loans (in Domestic Offices) A.1.a FR Y-14A Summary Income Statement
First Lien Mortgages A.1.a FR Y-14A Summary Income Statement
Second / Junior Lien Mortgages A.1.a FR Y-14A Summary Income Statement
Loans Secured by Farmland A.1.a FR Y-14A Summary Income Statement
Real Estate Loans (Not in Domestic Offices) A.1.a FR Y-14A Summary Income Statement

Schedule description and data granularity


Report Id Report Description Report Purpose Frequency Schedule Schedule Description
FR Y-14Q Captures BHC's granular data on various asset classes To capture actual data at the end of each quarter - Quarterly Regulatory Capital Instruments Captures details about redemptions and issuances
and pre-provision net revenue (PPNR) for the reporting improve the Federal Reserve's ability to perform its during the quarter and capital instrument positions.
period. continuous risk-monitoring function by providing
more-timely data.

Constituent Worksheets Forecasting Horizon Granularity of Data Captured


Regulatory Capital Instruments Actuals: Quarterly - from third quarter of the year of submission through third quarter of the following year (e.g. from Q3 2012 Captured at Security CUSIP/identifier and Instrument Type level
through Q3 2013)
Repurchases/ Redemptions Actuals: Quarterly - from third quarter of the year of submission through third quarter of the following year (e.g. from Q3 2012 Captured at Security CUSIP/identifier and Instrument Type level
through Q3 2013)

Issuances Actuals: Quarterly - from third quarter of the year of submission through third quarter of the following year (e.g. from Q3 2012 Captured at Security CUSIP/identifier and Instrument Type level
through Q3 2013)

Figure 4

cognizant 20-20 insights 9


data and reporting requirements. However, there Recovery and Resolution Plans (RRPs):
are multiple commonalities between CCAR and Lessons from the Past
DFAST in terms of data, processes and supervi-
The 2008 global financial crisis resulted in new
sion. Hence, there is significant scope for banks to
regulations aimed at increasing the resilience of
align processes to gain synergies while ensuring
banks; a key focus has been the preparation of
compliance with both, provided they reassess
a recovery and resolution plan (RRP). The RRP
their current operating model.
determines the operational procedures related
Both regulations should serve to inform the to liquidity crisis solution and thus highlights the
Federal Reserve and the general public of how need for more effective tools to resolve financial
these financial institutions capital ratios might distress. The responsibility of the ongoing
change during a hypothetical set of adverse monitoring of the emergency liquidity plans lies
economic conditions and the same three FRB- under the responsibility of treasury, risk and the
provided supervisory scenarios as under CCAR asset liability committee (ALCO). The RRP should
are required of the IHCs for the year-end DFAST. prevent a liquidity crisis from happening, with
its actions mainly dependent on the exposures
For institutions with significant trading and the systemic importance of the financial
businesses, extensive data template submissions institution.
are required to support supervisory stress tests
and analysis of the firms trading operations. The 2008 global financial crisis
A thorough understanding of the CCAR resulted in new regulations aimed
reporting requirements of all regulatory at increasing the resilience of
reporting templates will help banks identify the
level of data granularity in each schedule and
banks; a key focus has been the
regulatory requirement demand. The regulatory preparation of a recovery and
risk taxonomy analysis in Figure 4 (see previous resolution plan (RRP).
page) will also help banks ensure that the
required data is available in an appropriate Banks use stress scenarios for recovery planning
structure. purposes. Scenarios range in severity but banks
use both internal and external (usually driven
Risk-Based Pricing: A Pressing by macroeconomic indicators) ones for stress
Imperative testing in order to estimate the likely future
Risk-based pricing is the alignment of pricing of a impacts on income statement, balance sheet,
trade by reflecting the riskiness of the product in RWA, regulatory Tier I common equity, economic
the trade. A borrowers credit risk determines the capital and liquidity.
price as well as the interest payment, and thus the
RRPs set out what will be expected of banks
higher the perceived risk, the higher the fee that
with regard to planning for a stressed situation
should be charged on the OTC trade. Risk-based
that will require a bank to take action to recover
pricing closely aligns the cost structure with the
or undertake resolution in an orderly manner
real costs by incorporating considerations such
as cost of capital, cost of funding, expected and without the need for public funded support.
unexpected losses, and other allocated expenses RRP aims to minimize the adverse impact on the
to provide a price that maximizes value. financial system of firms failing to meet their
liabilities when they fall due. All the firms are
Along with CVA, rising funding costs that affect a required to provide the authorities with sufficient
firms P&L should be included in the valuation of information to assess the preferred recovery and
a product i.e., fair value adjustment (FVA). FVA resolution strategy.
incorporates the PV of funding cost into the value
of the product rather than accruing it over the Challenges and Complexities
life of the product. Banks also use fund transfer Banks are tasked with the dual agenda of meeting
pricing (FTP) to charge a lending business or economic and regulatory requirements. They
desk the cost of raising funds. FTP allows a bank face challenges on four fronts: governance,
to allocate funding costs to each business unit or processes, systems and data. The challenges
product based on how much capital is required manifest from these individually, and also due to
for that particular product. inefficient interaction between them. To manage

cognizant 20-20 insights 10


capital effectively, banks need to have stricter Bringing Order to Chaos: Implementing
governance and oversight to instill shareholder Effective Capital Management
confidence in business strategy and perfor- Processes
mance. The processes have to be streamlined
In order to effectively manage the indicated
to reduce complexity and response times, and
challenges, it is important to analyze and
achieve synergies while integrating functions
fully appreciate the complexity of the capital
within teams. Systems and data management management value chain in Figure 6 (see next
need to be overhauled in order to manage capital page).
accurately and in a timely manner. This will allow
banks to spend more time analyzing the data to Capital planning and supervision is an enterprise-
gain insights rather than simply aggregating and wide exercise that encompasses various functions
reporting data. within a bank, including strategy and business

Key Challenges Related to Capital Planning, Allocation & Management


The Regulatory Agenda The Economic Agenda
How do I allocate my capital How do I allocate my capital
across assets to ensure across assets to generate the
minimal risk and compliance highest risk-weighted return on
with regulatory requirements? assets?

Accurately measure quality of Define risk profile needed to


capital to ensure regulatory support overall capital planning.
compliance both across lines of
business and on an entity level. Capital
Management
Accurately capture and monitor Decision-Making Obtain accurate risk-based
leverage. Process product pricing.

Have accurate view of asset Set risk-adjusted performance


classification to accurately measures to drive decision-
forecast regulatory capital making.
requirements.

Monitor counterparty credit Compare performance between


exposure. different lines of business.

Challenges
Governance Process Data Systems

Capital planning not Difficult to fully utilize Defragmented data Difficult to scale
adequately responsive capital planning resource architecture makes it systems to address
due to lack of alignment due to lack of synergy difficult to capture increased modelling
between senior between business and IT, performance and risk requirements.
management. and between risk and measures both across
finance. lines of business and on Systems incapable of
Difficult to compare an entity level. supporting increased
business lines due to Processes slow, stress testing require-
lack of standardized inefficient and prone to Degree of data ments.
metrics or KPIs. human error due to granularity between
reliance on manual businesses inconsistent Lack of real time or
Delayed response to processes. which makes KPIs on-demand data due to
resolve identified issues difficult to design and system design and
due to absence of Processes cannot be comparison between performance
ownership and adapted during transfor- businesses difficult. limitations.
accountability. mational phases.
Data produced is
Decision-making slow Processes pose opera- inaccurate, incomplete
due to fragmented and tional risk due to lack of and out of date and
poorly defined approval robust control frame- hence, decisions based
process. work. on data are unreliable
and flawed.

Figure 5

cognizant 20-20 insights 11


planning, risk management, finance, front office, often make use of sophisticated risk management
compliance, executive management and the platforms. A disparate set of processes and
board of directors. Capital management requires systems must come together to support and
data and system interactions within the various guide capital management at each step. To enable
functions. For instance, in planning for an orga- a successful framework, firms need to rethink
nizations overall capital needs, its risk appetite their enterprise data management strategy and
will in part advise an organization and the risk develop a standardized data dictionary. Banks
appetite, in turn, will be facilitated by extensive will also need to strategize and define the target
stakeholder discussions and risk calculations. operating model for effective capital management
Similarly, when an organization is monitoring and transform their processes, systems and data
capital risk associated with a line of business, it infrastructure.
will seek advice from its control framework in
determining how frequently capital needs to be This transformation has largely been ad hoc,
monitored. The firm will also require significant reactive and tactical to accommodate the
firepower from risk management teams that immediate regulatory requirement. Banks need to

Capital Management Value Chain


Goal definition and
strategic planning
Recognition of Stakeholder and
Organisational Goals

Implementation Roadmap

Business & Operating Model


Development

Organisational Recovery Resolution Strategies Regular sources of finance &


target deadlines & Operational Plan market accessibility

Stress testing performance Sources of finance


metrics & BU/ Product focus for resolution

Pricing & performance Planning &


Financing
Forecasting Risk management
measurement

Product/BU Strategy Review BU/Products Risk Appetite Setting


Economic
capital
performance Capital
Defining Performance Metric
& Monitoring Performance metrics Risk Reporting and Analysis
Capital
Capital
Regulatory Allocation &
Performance
Risk Based Pricing Capital Usage Limit Risk Control Limits
against Planning
Setting

Risk Identification, Modelling


Reallocating Resources
Capital Risk & Measurement
Measurement & Usage
Limit Monitoring
Resource
reallocation plans
Risk control
limit
XVA metrics definition

Capital risk
metrics

Limit monitoring
frequency
Governance, policies and
procedures

Monitoring Of Compliance

Set up Control Framework

Design Controls

Policy Development

Figure 6

cognizant 20-20 insights 12


engage in strategic rather than ad hoc enterprise- the enterprise service bus before transforming
level change programs. Our experience suggests it appropriately in the warehousing layer.
that business and IT transformations are often
disconnected and poorly aligned with enterprise- The transformed data is ready to support various
level strategy. Hence, a change that can improve processes underlying capital management.
multiple functions often addresses only a few due Several of these processes are performed in the
to lack of relevant stakeholder involvement in core computation layer. In particular, the model
the early stages. By the time other functions are allows the organization to gauge capital demand,
involved, implementation deadlines force singular and allows planning and forecasting to be
changes, and firms fail to leverage potential performed on a dynamic basis by incorporating
synergies. Enterprise-wide change management the changes within the industry and regulatory
programs would enable proper integration, landscape.
address challenges at the outset and avoid work-
It is important to recognize that there are various
arounds that often create governance issues.
levers within an organization that influence its
For instance, embedding a strategic transforma- RWA. The allocation module incorporates these
tion process will help banks successfully optimize various levers to provide re-optimized capital
their regulatory capital and hence optimize RWA. allocations across LOBs and products and ensure
Reviewing current systems and data can help a firms RWA is minimized. The capital risk mate-
make granular data available to achieve this. riality module generates relevant capital risk cal-
culations and advises on the materiality of limit
Based on our analysis of the underlying challenges breaches to ensure organizations can be well-
within the capital management process, we prepared. The information must be presented
propose an efficient IT platform model that facili- through function-specific dashboards that
tates and automates the complex challenges allow stakeholders to monitor risks and control
covered in this paper. At the outset, the model outcomes.
collates data from multiple disparate systems in

Roadmap: Strategic Transformation and


Implementation of Target Operating Model

Gap identification & Implementation of


As-is analysis
recommendations to address gaps optimization
Activities Analyze and Compare work to date with best practice to Define data requirements to
document as-is state: identify: enable the automation of
Review of IT Gaps. processes and reporting.
architecture. Misalignment with as-is state.
Design future state by mapping
Analysis of Assess existing management IT to identify data process based on to-date
interdependency control weaknesses and process inefficiencies. recommendations.
of data and
systems. Propose how different units( process, controls, Start implementing optimization
Test robustness of data and systems) should interact. in systems, data and processes.
control framework
Quantify impact of gaps at a high level based Ensure business users are
(including IT
on best practices and market experience. adequately informed of change.
controls).
Prioritize gaps based on value & delivery Confirmation with relevant
Review and confirm
impact. stakeholders that requirements
as-is state with
have been met post
relevant stakeholders. Develop potential options and implementation.
recommendations to close high priority gaps.

Output Documentation of Identification of gaps and weaknesses in Target state achieved.


as-is state. existing structure.
Endorsement of target state
Approval from List of prioritized gaps and potential impact of from relevant stakeholders.
relevant stakeholders. each gap.

Recommendations and actions to close gaps.

Cost estimates.

Figure 7

cognizant 20-20 insights 13


Capital Management IT Model

Trade Positions, PV PnL, Tier 1 and Tier 2 Capital,


Trading System Finance System
Existing RAROC, Leverage Ratios
Client Enterprise
PGs, LGDs, EPE, ENE Expected
Systems Static Trade Data, Historical and Service Bus Shortfall, Stress Tests, Back Testing,
Data Repository Risk System
Market Data (e.g., Ratings) (Routing, AMA, VaR sensitivities and VaRs,
Trading Agreements
Messaging,) Risk Limits
Other Relevant
Legal & Compliance Netting Agreements Other Metrics Systems
Collateral Agreements

Risk & Finance Data

Orchestration,
Warehousing Data Sourcing & Transformation Engine Validation &
Layer Reconciliation
Component
Market Entity Risk ROE Credit Achieved Credit
Prices & Appetite RAROC exposure RAROC Limit
Industry & Regulatory Business/ Business/LOB/ Business/LOB/
Margin Entity Limit Breaches Business/LOB/
Entity Capital & LOB/Product EVA Product Risk & Product Capital Achieved Product Capital
Performance Financing RAROC Economic Performance VaR Regulatory Risk Metrics RWA VaR Usage Metrics
Metrics Costs Leverage Capital Metrics Metrics Limits Limits Achieved Breaches
...
Ratio LCR Leverage
Limits Ratio

Scenario Demand Scenario Adjustments


creation Generator Planning & Rules Capital Risk
Computation rules Forecasting Aggregation Engine Allocation Materiality Materiality
Materiality
Layer Dynamic Capital Module Definition Assessment Engine
Module Aggregation Module
Demand
Demand Rules
Forecasting Engine
Forecasting Allocation Engine Capital Risk Capital Risk Engine
Model & Optimisation Definition
Rules Exception Manager Rules

Reporting Capital Optimal RWA & Capital Risk Assessment &


Layer Performance
Projections Capital Allocations Materiality Heatmaps Analysis
Dashboard

Reported and Analysed by Line of Business, Product, Geography, etc.

Figure 8

Conclusion allocated. This will help establish greater predict-


ability on capital demand.
In this increasingly dynamic post-crisis era, banks
decision-makers will need to work through layers In addition to encouraging greater collaboration
of complexity when implementing a comprehen- between various stakeholders, the change in
sive capital management strategy. Banks need to approach will enable banks to fully utilize existing
perform an in-depth assessment of the existing resources and generate greater return on pre-
governance structure, processes, systems and existing investments and assets. Ultimately, a
data. Adopting a holistic approach will not only holistic capital management framework will
allow banks to improve operationally through enable banks to comply with regulations while
streamlined processes, but also help identify also ensuring that they generate sustainable
the areas where capital is being inappropriately value for their shareholders.

cognizant 20-20 insights 14


Footnotes
ROE = Net Income / Capital
1

2
A certain iteration of EVA can be given by EVA = (Revenues Costs-Expected Loss Tax) - (Economic
Capital * Cost of Capital Employed)
3
Capital Ratio = Regulatory Capital (Tier 1 + Tier2) / RWA Assets (Credit, Market, Operational)
4
Liquidity Coverage Ratio = Stock of high quality liquid assets / Net cash outflows over a 30 day period
100%
5
Net Stable Funding Ratio = Available amount of stable funding / Required amount of stable funding)
100%

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About the Authors


David Paris is Governance, Risk & Compliance (GRC) head within the Banking and Financial Services
sector for Cognizant Technology Solutions in the UK. He has over 30 years of experience in financial
services management and advisory globally, focused on credit, market, liquidity and operational risk
management. This includes roles at Wells Fargo Bank, First Interstate Bank, Ernst & Young, Reuters
Instinet, IBM and Cognizant. David has an M.B.A. in finance from the American Graduate School of Inter-
national Management and a degree in Chinese and Russian history from Washington University. He can
be reached at David.Paris@cognizant.com.

Guruprasad Chavan is an Associate Director (Consulting Senior Manager) within Cognizant Business
Consultings BFS Governance Risk and Compliance Practice. He has over 16 years of experience in
business/IT consulting and auditing across various areas such as strategy consulting, enterprise-wide
risk management, accounting policy, SOX compliance, AML, information security and business continuity
management. Guruprasad has in-depth knowledge and experience across various domains within banking
and capital markets. He can be reached at Guruprasad.Chavan@cognizant.com.

Nick Palamaras is a Senior Manager (Consulting Manager) within Cognizant Business Consulting. He has
over 12 years of experience in risk consulting and investment banking. Nick has significant experience
across the risk, finance and treasury functions, and with regulatory teams of global investment banks.
He has in-depth knowledge of prudential regulation, liquidity risk and Basel (CRDIV and CRR), and has
led assignments in the assessment as well as the design and implementation of treasury and liquidity
risk management frameworks. Nick is a Chartered Accountant (ACCA) and holds a postgraduate degree
in economics and banking. He can be reached at Nikolaos.Palamaras@cognizant.com.

Zareef Anam is an Associate (Business Analyst) within Cognizant Business Consulting. He has worked on
multiple consulting engagements including business transformation, regulatory compliance and opera-
tional risk. He can be reached at Zareef.Anam@cognizant.com.

About Cognizant
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listed among the most admired companies in the world. Learn how Cognizant helps clients lead with
digital at www.cognizant.com or follow us @Cognizant .

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