Introduction

Lourenco Miranda

The financial crisis of 2007–08 taught us all a lesson: that preparedness is everything. The issue is not if the next financial crisis will happen but rather when it will happen, and when it does how well we are prepared to weather it without too much damage. How resilient will we be and how fast will we be able to recover? Those are the major questions that we will address and answer during the course of this book.

In a financial institution, capital planning is the most important part of business strategy. What will make the difference between those that will endure the storm and those who will not is how prepared the firm is and how much capital they will have in order to survive. This is the key focus of this book: how to plan for moments of distress so that firms such as yours have capital of a sufficient quality to survive potential storms, which will be unmerciful for those who are not prepared. We will demonstrate how to create a robust capital plan and test it for moments of hypothetical stress. We will investigate exactly how a bank holding company and an insurance company should conduct their capital plan, highlighting the significant differences between the two indu

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