Efficient Regulatory Capital Management

In the wake of the Global Financial Crisis, Asian banks are following their global peers in taking another look at the most efficient use of regulatory capital.

This has tended to involve some combination of three main elements which we discuss in this article: actions aimed at increasing the accuracy of risk-weighted assets (RWA) calculations; actions aimed at optimizing risk-adjusted return on capital, thereby better aligning regulatory capital, risk appetite and strategy; and actions aimed at optimal structuring of available capital through use of different capital instruments and corporate structures. When well deployed, such techniques can yield significant efficiency improvements. If there is a continued downturn in Asia prompted by a slowdown in China or broader downstream effects of the GFC and banks end up with rising funding costs, we believe that techniques such as the above could be the cheapest way of raising capital.

Authors:
Wolfram Hedrich – Partner in the Asia Pacific Finance & Risk Practice
Stuart Carmichael – Consultant in the Asia Pacific Finance & Risk Practice