The dynamic development of financial markets and the increased use of complex bank products call for efficient systems in order to limit and manage the risk situation of the individual credit institutions. The new Capital Accord (Basel II) meets this requirement by emphasising even more the importance of risk management and the integrated aggregate risk management of banks, in addition to methods geared for determining the regulatory capital requirements. In the international discussion the corresponding methods and procedures are called ICAAP (Internal Capital Adequacy Assessment Process). The Oesterreichische Nationalbank (OeNB) and the Financial Market Authority (FMA) have now presented a joint guideline dealing with this subject.
“The introduction of an ICAAP is not only motivated by regulatory requirements,” stresses Josef Christl, member of the OeNB Governing Board. It was in the best interests of every institution to ensure an acceptable risk position by adequate risk management and to detect business-threatening developments at an early stage, he said. FMA Executive Director Kurt Pribil adds: “Taking into account the heterogeneous structure of the Austrian banking industry, the guideline covers a broad spectrum. Thus, every institution is able to select individual methods which suit the complexity and volume of their business activities.”
The ICAAP guideline deals in depth with the subject of banks’ aggregate risk management. Following an introduction into the subject, a separate chapter is dedicated to the principle of proportionality, i.e. to risk management strategies proportionate to the complexity, nature, size and scale of the bank’s activities. The guideline focuses on the comprehensive description and explanation of the most important parts of an ICAAP. Assuming that an adequate risk strategy is being applied, it explains the assessment of all substantial risks in detail. Afterwards, it deals with the various kinds of capital and their suitability for protection against risk. Another separate chapter deals with the significance of a limit scheme tailored to the risk situation and the necessity of having efficient, internal control mechanisms in place.
“The new guideline is meant to help banks in implementing the ICAAP,” says OeNB Director Christl: “Principally, however, every bank has to decide for itself to which risks it wants to be exposed, and based on that decision select the methods for implementing the ICAAP.” Heinrich Traumüller, FMA Executive Director, adds: “We hope that this guideline helps to create a common understanding of the ICAAP’s practical implementation among supervisors and credit institutions.”
The guideline is available for download as a pdf file on the websites of the Oesterreichische Nationalbank (www.oenb.at) and the Financial Market Authority (fma.gv.at) or it can be ordered in print. The English version will be available shortly.
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516