Smart About Risk  

ICAAP (Internal Capital Adequacy Assessment Process)

Run as an open seminar in Czech language

The purpose of the Internal Capital Adequacy Assessment Process (ICAAP) is to assess risks, on an ongoing basis, a bank is or may be exposed to. At the same time, the bank assesses processes for mitigating these risks, the amount of current and future capital required to cover these risks and the system for capital maintenance and related control mechanisms.

The annual ICAAP reports have been submitted to the ČNB since the implementation of the BASEL II Accord in 2007. The topic has evolved over the last couple years and additional regulatory quantitative and qualitative requirements on ICAAP have been issued. The process for the assessment of liquidity adequacy (ILAAP) has been also added to the ICAAP process.

EBA Guidelines of 10th February 2017 (EBA/GL/2016/10) harmonized the requirements on information about ICAAP for supervisory authorities across the EU.

Offered services:

In the area of risk management, we offer specialised seminars as both open and in house trainings.


Risk Appetite (RA)

ARM can help you with:

  • risk identification (workshops, consultations, creation of templates for risk identification, creation of risk catalogue and setting of processes ensuring its regular update),
  • setting of rules for collection of data about risk events,
  • preparation of draft methodologies for risk measurement,
  • proposals of scales for the assessment of risk severity,
  • assessment of materiality and significance of risks,
  • assessment of current methodologies for risk measurement,
  • specification of the risk appetite, selection of suitable time horizons and creation of Risk Appetite Framework and Risk Appetite Statement,
  • setting of quantitative limits for individual risks:
    • regulatory and internal capital adequacy for planned development;
    • regulatory and internal capital adequacy for stress scenarios;
    • additional internal limits;
  • creation of Business Continuity Plan (BCM) for a predefined set of stress scenarios,
  • assessment of the compliance of the risks which is the bank exposed to with risk appetite,
  • verbal description of the assessment of the overall risk profile of the bank.

ICAAP Methodology

ARM can help you with:

  • preparation of draft methodologies for ICAAP,
  • assessment of current methodologies for ICAAP – logical correctness, completeness, sufficient level of complexity (with regard to the size and structure of the bank), implementation of methodologies, suitability of the selected planning period,
  • assessment of control mechanisms,
  • assessment of compliance of ICAAP methodologies with relevant regulations, internal policies and methodologies,
  • preparation of draft ICAAP development strategies,
  • update process of ICAAP methodologies.


Economic Capital

ARM can help you with:

  • preparation of economic capital model for credit risk:
    • model structure design,
    • models for PD, LGD, CCF,
    • behavioural models (e.g. models on pre-payments).
  • preparation of economic capital models for operational risk:
    • AMA-based models (e.g. Value at Risk and LDA with/without Extreme Value Theory), o calculation of capital requirements using BIA, TSA:
      • assistance with the identification of business lines and categorisation of risk event types,
      • assistance with the transition to the revised standardized approach (likely to be applicable from 2022);
  • preparation of economic capital models for IRRBB, including back-testing and validation of behavioural models;
  • proposal of economic capital models for other risks,
  • proposal of rules for the aggregation of economic capital for individual risks,
  • validation of current models for economic capital – assessment of assumptions, logical accuracy of models and their compliance with methodologies; verification of the calculation accuracy, data quality check and assessment of model documentation.

Stress testing

ARM can help you with:

  • creation of the stress testing frameworks,
  • proposal of particular stress scenarios:
    • planned development,
    • stress scenarios,
    • liquidity shocks,
    • operational risk scenarios,
    • regulatory scenarios;
  • analysis of stress scenarios impact on the value of economic and regulatory capital,
  • revision of current stress testing methodologies,
  • assessment of compliance of stress testing methodologies with relevant regulations and internal policies,
  • assessment of the necessity of strategic plan modifications based on stress testing results and proposal of possible actions.


ICAAP Reporting

ARM can help you with:

  • analysis of the reporting framework and individual reports as part of internal governance (reporting as a tool supporting decision-making process),
  • automatization of reporting (e.g. development of VBA scripts generating relevant reports),
  • assessment of sufficiency of reports prepared for purposes of internal and regulatory reporting.


ILAAP (Internal Liquidity Adequecy Assesment Process)

ARM can help you with:

  • analysis of the current state of liquidity management,
  • proposal of methodologies for ILAAP,
  • assessment of current methodologies for ILAAP,
  • LCR and NSFR calculations,
  • Liquidity Buffer calculation,
  • creation of contingency plans, or revision of related documentation.