ICAAP – The Deadline Is Closer Than It Looks

As firms start to consider in earnest how to approach their Individual Capital Adequacy Assessment Process ("ICAAP") and the appropriate documentation of that process, which needs to be in place in final form by 1 January 2008 at latest, there are a number of practical issues which need to be addressed.

For a number of small and medium sized firms, the use of internal models or economic capital models will not be a realistic option for ICAAP purposes. They will therefore go down a "Pillar 1 plus" route; ie, taking the assessment of capital requirements from their Pillar 1 calculation of capital requirements and assessing the incremental level of capital required to capture both the risks not met by the Pillar 1 calculation for market, credit and operational risk, and the additional Pillar 2 requirements not addressed by the Pillar 1 calculation. This second list will need to be tailored to the firm’s view of the major risks it faces. It is likely to include operational risk for those