Bank Analysis School eBook

Internal Use Only

Most Criticisms are Based on the 2010 FIL  Policy and risk limits  Earnings forecasted over at least a two-year period  Static earnings simulation  Economic value of equity modeled  Range of severe scenarios (e.g. 400 basis points, non-parallel)  Stress testing of critical assumptions  Document key assumptions  Independent review  Back-testing

Internal Use Only

Avoid a “Check Boxes” Approach

“When evaluating the applicability of specific guidelines provided in this advisory… management and regulators should consider factors such as the size of the institution, the nature and complexity of its activities, and the adequacy of its level of capital and earnings in relation to its overall IRR profile.”