The ICAAP process: what it is, why it matters and its main challenges

What it is about

The ICAAP determines how much capital is needed to cover all material risks: those of Pillar 1 and the additional risks of Pillar 2, such as credit concentration risk and interest rate risk in the banking book. It has two components: one looks at the current situation, with the volume of risk-weighted assets and the total capital ratio, usually at each year-end; the other looks ahead, based on the budget projected for at least three years, to support growth plans.

The guest is José Manuel Desviat, an economist with a master’s degree in Banking Management, with more than 30 years of experience in global risk management, financial regulation and capital in the financial sector. The session covers the importance of the ICAAP as a self-assessment of capital adequacy for internal management, its role in the supervisory assessment under Pillar 2, the main challenges in implementing a robust ICAAP, and proportionality for smaller institutions.

The webinar also argues that, in the recovery after the health crisis, capital adequacy will become more relevant, because capital is one of the scarcest resources of financial institutions and using it well can provide a competitive advantage.