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Authors: Mario Schlener | LinkedIn – Partner, Financial Services Risk Management, EY Canada
Vishal Gossain - EY Risk Analytics and Balance Sheet Management Leader | EY Canada
Shelly Wu | LinkedIn – Senior Manager, EY Canada
Aly Mohyeldeen Raeia | LinkedIn – Senior Manager, EY Canada
Diksha Khosla, FRM, MBA, B.Eng | LinkedIn – Senior Manager, EY Canada
Malhar M. | LinkedIn – Manager, EY Canada
We explore the strategic approach Canadian domestic systemically important banks (D-SIB banks) undertake in managing multiple capital perspectives. In this context, the optimization of efforts becomes crucial, directing attention towards constraints that offer maximum value aligned with a federally regulated financial institution’s (FRFI) strategic vision and business strategy. Notably, both US and Canadian banks facing similar constraints increasingly adopt a "going concern" view, emphasizing the importance of maintaining liquidity to avert technical insolvency resulting from a loss of market confidence. The optimization strategy encompasses addressing stress scenarios and detailed parameter-based charges such as Risk-Weighted Assets (RWA).
Furthermore, our study underscores the significance of employing metrics that not only gauge portfolio risk but also evaluate its profitability and efficiency relative to the capital deployed. This strategic focus ensures a robust approach to risk management and capital optimization within the dynamic financial landscape.
Read EY Financial services risk management capital optimization framework
Summary
The framework proposed presents an EY perspective into strategic capital optimization for Canadian D-SIB banks: balancing risk, profitability and efficiency.