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Risk management and Pillar II: implementing ICAAP in Italian credit cooperative banks

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Abstract

We want to show the relevance of risk management and riskbased functions in banks, as during the recent crisis what has become very clear is that capital requirements for financial institutions were not always adequate given their risks. Under the current set of rules the Internal Capital Adequacy Assessment Process (ICAAP) is a requirement for banks and is necessary to measure the principal risks that each bank must afford and manage. So we first consider the role, functions and requirements of the ICAAP. Banks often tend to calculate the capital buffer they hold by extrapolating figures from previous events, instead of using a forecast risk profile. Using its particular scheme the ICAAP should provide firms with the best capital buffer required, and the best level of funds from stockholders. For this reason we present an overview of the ICAAP methodology and results. In particular we consider the case of credit cooperative banks in Campania, by taking into account their ICAAP schemes and the effects of these new rules and this kind of self-regulation.

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  • Cerrone, Rosaria & Madonna, Michele Maria, 2012. "Risk management and Pillar II: implementing ICAAP in Italian credit cooperative banks," Journal of Financial Transformation, Capco Institute, vol. 35, pages 71-80.
  • Handle: RePEc:ris:jofitr:1529
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    Keywords

    ICAAP; risk management; capital requirements; Pillar II;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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