Allocating Capital to the Trade Business

GBI provided a client some comparative input in how major trade banks are treating the subject of capital adequacy for trade.

Issues compared included:

• Proprietary models used to determine capital allocated per transaction (capital weighting depends on the risk rating, maturity, collateral, industry and geographic region).
• Facility management (how many trade lines and how is capital allocated for usage/facility for each type of line).
• Treatment of tenor in proprietary models
• Use of facility grades (or at least the nature of how much they can improve the merits of the (risk) as part of the overall analysis of counterparties (in addition to borrowers grade, loss given default).
• How do the internal rating systems in use today separate the credit quality of the obligor from the specific transaction risk?
• internal data analysis done on trade risk and default experience - ie, Can the bank distinguish internally their loss experience on trade v. non trade risk by market, corporate, etc.

Proprietary Research Example Slides:   Slide 1   Slide 2   Slide 3