Interview with Joseph Silverberg, CFA, Capital Lead, Enterprise Stress Analytics at SunTrust Bank
Capital management stays a priority for banks due to the regulatory and business pressures, with new proposals constantly emerging. These ever increasing regulatory demands create numerous operational, strategic, infrastructural and data challenges. Banks are desperate to find new ways and solutions to optimize the running of stress tests and the documentation around them.
Joseph Silverberg, CFA, Capital Lead of Enterprise Stress Analytics at SunTrust Bank, recently spoke with GFMI about key topics to be discussed at their upcoming 4th Annual Capital Adequacy, Strategy, and Stress Testing Executive Meeting, September 16-18, 2015 in New York.
Why is capital adequacy such a key issue for financial institutions at this time?
JS: The capital adequacy process is of the utmost importance in the banking industry as it is the mechanism through which a bank ensures that it not only maintains sufficient capital to meet regulatory and bondholder expectations, but also meet shareholder and other stakeholder expectations. In other words, proper management of a bank’s capital adequacy ensures that the institution remains solvent through normal and stressed macroeconomic periods, and also provides an adequate return to shareholders.
What impact have the capital requirements had on capital allocation?
JS: The regulatory requirements have had a few key impacts on capital allocation strategies:
- Regulatory capital limits, as stated under the Basel III regime, require that BHCs hold a set amount of capital. In most circumstances, these mandated capital levels are above levels that would have been calculated through BHCs economic capital models. To the extent that regulatory capital is the BHCs binding constraint on the amount of capital maintained, the economic capital forecasts become less relevant. Resultantly, capital allocation strategies based on economic capital may not be optimal.
- Through the risk weighting of assets under the Basel III regime, the risk profile for allocating capital to grow certain portfolios may change. For example, when choosing between the allocations of capital between two assets of similar yields, a BHC would deploy capital to the asset with the lower risk-weight.
- The Comprehensive Capital Analysis and Review and other stress tests are integral components in BHC capital adequacy processes, and hence, may inform capital allocation strategies.
How can institutions ensure effective capital management?
JS: Effective capital management can be ensured by integrating both internal and regulatory risk considerations. Specifically, BHCs can more effectively manage regulatory capital by more closely considering the return on regulatory capital in both baseline and stress macroeconomic environments
(i.e., for BHCs that are subject to the Comprehensive Capital Analysis and Review (“CCAR”), effective capital management should also consider stressed returns on regulatory capital).
Given that the measurement and determination of the amount of capital a BHC is required to hold is based on the CCAR stress , BHCs should consider incorporating their stressed outcomes into capital allocation decisions.
What does the future of capital adequacy look like?
JS: Capital adequacy management is continuously evolving. Although managing regulatory capital is an area of focus, I would expect that other capital management mechanisms will be considered going forward.
What do you think attendees will gain from attending this event?
JS: Attendees will gain an industry-wide perspective on various ways to measure and manage capital within a financial institution.
Mr. Silverberg is the Capital Management Lead at SunTrust Banks, Inc. In this role he is responsible for managing a variety of capital planning and stress testing activities, and for performing other enterprise-wide initiatives related to CCAR and DFAST submissions. Prior to joining SunTrust, Mr. Silverberg worked for Navigant Capital Advisors and KPMG’s Economic and Valuation Services practice, where he managed several engagements for various financial services, technology, and manufacturing companies. He provided corporate finance advisory services, including securities and enterprise valuations for mergers & acquisitions, financial reporting, restructuring and tax purposes. Mr. Silverberg began his career as an equity trader, making markets in various equities, derivatives, and ADRs, where he developed and managed global relationships with various institutional investors. Mr. Silverberg is a CFA charterholder and earned his bachelor’s degree in Finance from University of Florida and an MBA from Emory University.
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