The Capital Plan

Lourenco Miranda

BUILDING A SOLID FOUNDATION

This chapter will introduce the major concepts of a capital plan for a financial institution and how the capital plan relates to risk management, as both share common goals: preserving capital and creating value for the business. This is the first step of a journey towards implementing a stress-testing framework in a CCAR context.11For more on CCAR, see http://www.federalreserve.gov/bankinforeg/ccar.htm. Through the course of the book, we will discuss how this capital plan behaves under a stressful environment such as an economic recession. Regardless of what segment, geography, product offering and client coverage the institution is in, and besides being the law for certain large firms, producing a capital plan is a fundamental risk management and business practice.

History has demonstrated that it is not matter of if but of when the next financial storm will hit the financial system. And when it does hit, it will hit hard. Such a financial storm may be called something else, such as recession or economic downturn, or even another Great Depression. Regardless, even though the sun may be shining now, from over the distant horizon those storm clouds

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