Capital Planning in Uncertain Times

Prior to the Silicon Valley Bank failure, capital planning had been a relatively simple process. You would state that you were planning on being well-capitalized, set out your capital ratio minimums, do a basic stress test on your loan portfolio, and list the actions you would take in the event your capital ratios fell below your plan minimums. As long as it was reasonable, it would tend to pass regulatory muster.

Today is a different story. Capital planning has become significantly more complex with the rapid rise in interest rates causing a deterioration in investment value and an outflow of deposits, along with the unprecedented speed of the SVB deposit run and failure. You not only need to stress test your loan portfolio, but also factor in deposit outflows, forecast cash flow, deeply analyze your liquidity, and then stress test each of those to determine if you are at risk of falling below well-capitalized.

In addition, you must now consider the speed at which your plans can be executed. Many organizations have detailed liquidity and interest rate risk reports and plans but fail to integrate those plans into the capital planning process. Risks are typically interrelated and should be analyzed holistically and not as individual silos of risk. This program will teach you to be more proactive and detailed in your capital planning process.

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