Institutional Risk Analytics has released Q3 2006 Economic Capital, Basel II and financial performance indicators for all US banks to subscribers of the IRA Bank Monitor. IRA’s quarterly survey, ‘Basel II by the Numbers,’ will be available for purchase in the first week of January 2007. The latest version of ‘Basel II by the Numbers’ will include as filed Y-9 data for US bank holding companies as well as the as filed bank unit data from the FDIC.
In the fully stressed simulation featured in the IRA Bank Monitor, some of the largest US banks are shown to need Economic Capital (EC), a Basel II term meant to describe the amount of capital required to cover the risks taken by a financial institution, well in excess of current Tier One Risk Based Capital (RBC).
As with previous reports, IRA employs a test methodology that sets a very high hurdle in terms of measuring risk-based capital adequacy for safety and soudness purposes. IRA deliberately selected an EC simulation that is the opposite of that employed in the Quantitative Impact Survey IV conducted by US regulators during 2005, which essentially asked banks to define their minimum capital needs. By emphasising the trading book risk on the balance sheets of the largest US banks, the IRA Basel II simulation illustrates the wide differences in business models among US financial institutions. By contrast, most smaller US banks require EC below their Tier One RBC.