Capital Adequacy


Capital Adequacy is a critical risk management metric that helps financial institutions determine the level of capital reserves needed to protect them against unexpected losses under adverse and unanticipated economic events. The analytics required to derive capital reserves introduce an objective, data-driven methodology that incorporates the unique risk profile of each financial institution.

For many Community Banks, Credit Unions and smaller Financial Institutions, constraints in access to data and analytic resources limits their capabilities to measure the capital reserves that are aligned with their risk profiles. Consequently, many of these institutions are unable to estimate and set aside the capital reserve levels needed to protect them against adverse economic events.

Our Capital Optimization Modeling Services are designed to assist Community Banks, Credit Unions and smaller Financial Institutions estimate capital reserves incorporating the unique risk profile of each institution. The benefits from this methodology extend across several areas:

  • FREE-UP EXCESS CAPITAL: Estimate the required capital reserves across asset classes and free-up excess capital.
  • ESTIMATE RISK PARAMETERS: Incorporate portfolio performance metrics (PD, LGD, EAD) into the capital reserve estimation process.
  • SET OPTIMAL CAPITAL RESERVES: Estimate the required capital reserve levels determined by portfolio risk.
  • PREVENT CAPITAL SHORT-FALLS: Set aside the required capital reserves to prevent, unexpected capital short-falls.

Our Credit Adequacy modeling process and methdology leverage state of the art statistical modeling and machine learning (ML) algorithms that provide accurate and reliable estimates of capital reserve requirements.

Credit Risk Analytics

Leverage Credit Risk Scorecards to identify loan ‘red flags’, reduce losses and grow profits.

Deposit Profitability Modeling

Predictive Models to forecast the stability and profitability of deposit levels across time.

Capital Adequacy

Know the Capital Reserve requirements needed to survive unexpected credit losses.

ALM Modeling

Measure the impact of changes in interest rates on NII, NEV, capital adequacy and profitability.