Financial Impact - Central Resource Management
Summary
• A Central Resource Management Function will be critical to the successful management of the balance sheet, acting as the 'guardian' of capital and funding requirements, including resource optimization
• This function will be first line of defence on capital and have the right levels of transactions approval, in-line with risk appetite and policy
• Resource Management will be tasked with capital optimization, funding and collateral optimization for Trading & Sales desks, within constraints across balance sheet, ESG, operational and risk, to drive client revenue.
Central Resource Management Stages
1. Strategy:
Support the business in allocating capital efficiently in a transparent framework, accounting for output floor, leverage ratio and risk-based capital, while launching a pro-business initiative that supports sustainable growth.
2. Capital Allocation:
Banks must have an efficient use and deployment of capital (asset allocation/rebalancing) to adhere to Basel 3.1.
3. Portfolio Composition:
Banks with significant RWA impacts and concentrated business models will need to optimize their business and balance sheets.
4. Risk Appetite:
Basel 3.1 rules will trigger concerns around strategies on increasing risky behavior to generate EVA, promoting shadow banking and imposing constraints in credit availability.
5. Performance Measurement:
Where low risk and low returns business is hit by RWA weighting floors, banks will need to identify possibilities to increase profitability by adjusting prices.
6. ROC Improvement:
Where this is not possible and the cost of meeting regulatory hurdles and risks makes the business unprofitable, the bank will need to look to move low grade assets and risks off the balance sheet and rescue the amount of regulatory capital they need to hold to cover the risks.
