“We have to make choices between what feels inherently right from an economic capital perspective to what needs to get done from a regulatory perspective.”

The impact of the crisis and new regulatory requirements has driven senior managers to reevaluate their capital management priorities.

More than 70% report they’ve either completed or are in the midst of in-depth reviews to identify and assess the risks taken across business units and entities. Many indicate these reviews are changing their company’s approach to allocating capital to more accurately reflect enterprise-wide risks.

Over half have changed their approaches to allocating capital across business units

A widening gap between internal measures of how much capital is needed and regulatory requirements has made effective capital planning difficult. For European and US banks, regulatory capital is now higher than economic capital.

Stress testing and scenario analysis are becoming increasingly important to manage liquidity and capital under the new regulations. Encouragingly, 73% of interviewees believe they have the right tools in place to manage capital and business planning under Basel III, yet 42% of banks that were greatly impacted by the crisis are not confident they can adhere to the new rules.

The majority believe they have the right tools to manage capital and business planning under Basel III

Clearly, there is widespread discontent about the new and fluid regulations and the inconsistency in its reform rollout across different countries and regions.

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