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The only constant is change. The financial sector can tell you a thing or two about this. However, the current upheavals are enormous - and the role of overall bank management is also changing significantly. On the one hand, in view of the increasing pressure on margins and earnings, it is essential for banks to understand the revenue and cost drivers as well as profitability in detail in order to make the right strategic and operational decisions. In addition, however, regulators and supervisors are also pushing to increase profitability and to analyse the robustness of banks’ business models in scenario-based multi-year plans via ICAAP and ILAAP.

As a result, this means that planning and stress testing are coming together and evolving into an integrated risk and return simulation framework. Digitalisation is certainly a challenge, but above all it is also an opportunity to set up modern overall bank management solutions.

From our many years of intensive cooperation with the risk and finance functions of German, European and international banks of all sizes, we bring sound overall bank management know-how to the table. With our comprehensive solutions, we address both regulatory and economic requirements and help our customers to build their Bank Management 4.0.

Our project experience shows that, in addition to methodological competence, technical know-how in implementation (“IT architecture and IT landscape” of bank management) is particularly decisive for success. Therefore, we also cover the full spectrum from conception to realisation with our solutions.

The most important fields of action in which we currently support our customers are:

  • ICAAP & ILAAP: the implementation of the requirements from the supervisor’s guidelines
  • Establishment of a strategic treasury as the central resource manager of the bank
  • Further development of financial controlling
  • Setup of a framework for scenario-based planning and stress testing
  • Ad hoc support for regulatory stress testing
  • Revision of the overall bank management framework


In 2018, the ECB published the new ICAAP & ILAAP Guidelines, which it bases its SREP on in its 2019 assessment of the banks it supervises (SIs). BaFin has also updated its ICAAP Guide for banks it supervises (LSIs).

In the ICAAP, banks are therefore expected from now on to evaluate it from an economic and a normative perspective. Methodologically, the two perspectives are similar to the previous gone-concern approach or the already required capital planning. However, the requirements for the normative perspective are in part significantly higher compared to capital planning, especially with regard to the severity of the adverse scenarios to be considered and the detailing of the modelling in the respective simulations.

BaFin-supervised banks can alternatively continue to use the previous going-concern approach if they have also already implemented a well-positioned capital planning. Irrespective of this, however, we recommend that all banks check the conversion to the new turnovers, as it can be assumed that, in the medium term, they will also be required for BaFin-supervised banks.

For German banks, the following focal points arise in many cases in the ICAAP when implementing the new approaches:

  • Revision of the governance model and adaptation of the written regulations
  • Adjustments to the risk inventory to reflect the newly required “gross view”
  • Further development of model validation
  • Further development and merging of planning, forecasting & stress testing for the normative perspective
  • Selective methodological adjustments to implement the economic perspective (if necessary, complete reconstruction if only a going-concern approach according to the BaFin guidelines has been used so far).

The implementation of the ILAAP for ECB-supervised banks raises similar questions in part, since here too an economic and a normative perspective must be considered.

Building a strategic treasury

Overall, the ECB strongly emphasises in its ICAAP and ILAAP guidance documents that it expects the concept of the “3 Lines of Defence” to be implemented in governance.

Since effective resource management (balance sheet, capital and liquidity) is also becoming increasingly important for banks from a business perspective, we are observing a trend towards the establishment or expansion of so-called strategic treasuries as a business unit (first line of defence) in order to bundle the management activities for all the resources mentioned.

The core challenge here is certainly to clearly delineate the areas of responsibility between the functions involved in the first and second lines of defence and to adapt the business processes accordingly without creating new duplications and other inefficiencies.

Further development of financial controlling

Financial controlling at banks has always played an outstanding role in the implementation of the strategy and in keeping track of the business planning. With the new SREP and, associated with it, the new design of the ICAAP and ILAAP as multi-year plans in the normative perspective, financial controlling also becomes the focus of the ECB’s supervisory action.

In addition to the challenges of digitalisation to increase efficiency, this results in the following focal points for financial controlling in the future:

  • Strict implementation of the “three lines of defence” concept
  • Integration of the financial controlling models (esp. for planning) into the model risk framework
  • Stronger integration of planning with stress testing activities with a further development to scenario-based planning (see following section)
  • Stronger consolidation of the data collection and the IT architecture of finance and risk controlling
  • Review and adjustment of the role of financial controlling in overall governance, especially with regard to ICAAP and ILAAP

Scenario-based planning and stress testing

Comprehensive scenario and simulation capabilities are an essential success factor for modern overall bank management. Both business management in a world with increasing uncertainties and the requirements of supervisors and regulators make it necessary to merge and significantly develop the frameworks for planning and stress testing in order to become more effective and, above all, more efficient on this basis:

  • Regular external stress tests by EBA/ECB and BaFin (annually or biennially) with extensive reporting requirements
  • Regular internal scenario analyses for ICAAP and ILAAP (at least quarterly) and the planning process
  • Consideration of the development of new business in the internal scenario analyses (“dynamic balance sheet”) vs. assumption of a constant balance sheet in external stress tests of the EBA/ECB (“constant balance sheet”)

Multi-year scenario analyses along all relevant business and regulatory KPIs will thus be a core element of bank management in the next ten years. In this respect, we are increasingly observing a willingness in the market to invest in the necessary infrastructure in order to make the current processes, which are still highly manual, more efficient and perform better.

Regulatory stress tests

Regulatory stress tests are no longer to be thought of as not there due to supervisory action. In the absence of suitable infrastructure, however, these often involve high expenditures by the banks concerned.

With our consultants experienced in various stress tests and our comprehensive, directly applicable support tools, we effectively and efficiently help you pass the regulatory stress tests while giving you the freedom to further develop your stress testing framework to prepare for the next regulatory stress test.

Revision of the overall bank management framework

The above-mentioned building blocks significantly intervene in the overall bank management framework. In this context, we recommend that you always adapt the entire framework. Key areas of action often include:

  • Capital allocation method and approach to reflect the greater impact of stress scenarios
  • Reviewing and adjusting the consideration of capital costs in product pricing and in the measurement of success (e.g. RAROC or shareholder value concepts)
  • Limit system and limit allocation to the operating divisions
  • Review of the management approach of strategic and business risks, provided they are given a stronger weight due to the multi-year considerations in ICAAP and ILAAP

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