7 Ways to effectively manage your institution’s capital adequacy
As recent history has shown, it’s important to keep capital adequacy ratios above the thresholds set by examiners. As stated in the agency’s statement on stress testing, “The OCC expects every bank, regardless of size or risk profile, to have an effective internal process to (1) assess its capital adequacy in relation to its overall risks, and (2) to plan for maintaining appropriate capital levels.”
But, where do you start for creating a capital plan for stress testing? What if your institution’s current capital levels are below expectations?
The following infographic shows seven ways to bring your capital adequacy levels back in balance and in compliance with examiner thresholds.
It’s important to remember that stress scenarios are for planning purposes. They are unexpected situations, so it is likely that the financial institution could and should fall below its capital requirements in the most stressful scenarios. The idea of the stress test is not to demonstrate that the institution would still be above the required capital levels, but instead to show what circumstances could cause capital problems for the institution, and thus for the financial institution to demonstrate contingency planning around what they would do to maintain capital adequacy should the unexpected stressful situation arise.
To learn more about how examiners look at these ratios, download the whitepaper on How Regulators Guage Capital Adequacy Under Stress.