Capital Level Optimization


Without your institution’s historical default and recovery data, it is impossible to accurately estimate capital requirements.

To remain competitive, financial institutions, regardless of size, need to optimize their use and allocation of capital in their portfolios. Capital optimization is at the foundation of risk management and ensures that financial institutions estimate and manage the required level of capital that correlates with their historical risk profiles.

Due to resource constraints and other factors, many medium to small financial institutions often determine their capital requirements from reference to static look-up tables or guidelines that apply to all institutions, regardless of their differences in credit risk exposure, the maturity of their risk management practices, portfolio composition, location, size and their understanding of the potential risks of external adverse events to balance sheet performance. 

Without the incorporation, analysis and understanding of an institution’s historical performance data: default (PD), recovery rates (LGD) and exposure rates (EAD), it is impossible to estimate their unique capital requirements.

logicpath’s Capital Requirements Assessment Methodology leverages the analytical discipline of the Internal Ratings Based Approach from Basel III to assist financial institutions to derive estimates of capital charges under adverse economic scenarios.


Capital Optimization service:

  • Optimizes capital levels by leveraging your institution’s historical risk profile.
  • Reduces your institution’s capital adequacy requirements.
  • Aligns the institution’s IRR management process with its risk profile.
  • Improves communications with examiners and regulators.
  • Improves the effectiveness of institutions’ IRR management processes.

By leveraging historical risk profiles (PD, LGD, EAD) across portfolios, financial institutions gain an improved understanding of the capital levels required to manage their balance sheets under adverse economic scenarios and optimize the allocation and management of capital in their organizations.



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