The Degree Regulatory Capital is Constraining and Impact on Investment Decision Rules
Pierre Xu, Associate Director of Portfolio Research at Moody’s Analytics will discuss how required economic capital (EC) accounts for economic risks such as diversification and concentration effects.
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Incorporating Name-Level Dynamics in Scenario-Based Rating Transition Matrices
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Moody's Analytics Webinar: Credit Earnings Volatility and Share Price Performance: Implications of IFRS 9 and CECL
Join us as our experts, Amnon Levy, Managing Director, Pierre Xu, Director, and Anna Krayn, Senior Director, explore the relationship between share price performance and earnings volatility and the implications for credit portfolio management.
Moody's Analytics Webinar: Credit Earnings Volatility and Share Price Performance: Implications of IFRS 9 and CECL
The new accounting standards can have material implications for allowance and earnings dynamics. Join our researchers, Amnon Levy and Pierre Xu, explore a large sample of banks to better understand channels by which the standards affect shareholder value.
A Composite Capital Measure Unifying Business Decision Rules in the Face of Regulatory Requirements Under New Accounting Standards
This paper introduces an approach that quantifies the additional capital buffer an institution requires, beyond the required regulatory minimum, to limit the likelihood of a capital breach.
A Composite Capital Allocation Measure Integrating Regulatory and Economic Capital, and the Impact of IFRS 9 and CECL
We propose a composite capital allocation measure integrating regulatory and economic capital. The approach builds upon the economic framework underpinning traditional RORAC-style business decision rules, allowing for an optimized risk-return tradeoff while adhering to regulatory capital constraints. The measure has a number of depictions, and it can be viewed as a weighted sum of economic and regulatory capital, as economic capital adjusted for a regulatory capital charge, or as regulatory capital adjusted for concentration risk and diversification benefits. Intuitively, when represented as economic capital adjusted for a regulatory capital charge, the adjustment can be represented as the additional top-of-the-house regulatory capital, above economic capital, allocated by each instrument's required regulatory capital. We show that the measure has ideal properties for an integrated capital measure. When regulatory capital is binding, composite capital aggregates to the institution's top-of-the-house target capitalization rate. We find the measure is higher than economic capital, but lower than regulatory capital for instruments with high credit quality, reflecting the high regulatory capital charge for this instrument class. Finally, we address how IFRS 9/CECL impacts the CCM and discuss the broader implications of the new accounting standards.
