Banks are placing greater emphasis on capital planning and stress testing to address regulations like Basel III, but 45 per cent still do not have well-formulated and defined plans in this area.

Chartis Research, on behalf of SunGard, surveyed 146 industry practitioners and senior executives from banks and consulting firms around the world and identified a number of significant changes taking place in capital management and some major obstacles that banks are facing in this area: Banks are taking a more strategic, long term view of capital management, with respondents giving this function a score of 3.88 out of five on a scale that represented five as the most important.

Compliance was ranked as the most important factor driving capital planning. Only 26 per cent of respondents had well formulated processes with clear implementation timescales and full executive sponsorship. The majority of respondents cited adequate systems and data as the biggest challenge to capital planning. This was followed by the budgeting of capital by business line amid greater pressure to meet regulatory requirements.

Peyman Mestchian, managing partner, Chartis Research, says: “This research illustrates that compliance is no longer just about capital adequacy; banks must create more strategic and dynamic capital planning functions to help successfully address local and global regulation. In doing this, banks will face obstacles particularly in terms of resourcing as capital becomes scarcer and more expensive; therefore banks must learn to ‘do more with less’ in capital planning. So efficiency is key – without it, banks will struggle to fulfill regulatory requirements and improve their use of economic capital.”

Alwin Meyer, chief operating officer, SunGard’s Ambit risk and performance business unit, says: “Capital planning is largely viewed as a burden rather than an opportunity to improve performance; this is reflected through the current state of capital planning programs, which are predominantly still in their infancy. Banks have no choice but to adopt a cultural change towards capital planning, which will need to be a central component of compliance efforts in the future. An attitudinal shift, coupled with investment in modern technology can help banks optimize performance through capital planning and turn risk and compliance into a competitive advantage.”

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