CRD IV: Capital Calculations Overview


AxiomSL enables financial firms to automate the process of calculating and reporting their capital requirements, as part of Capital Requirements Directive IV (CRD IV). Its transparent solution gives users full access to its interpretation of the European Banking Authority’s (EBA’s) standard rules. AxiomSL’s ‘one platform’ model means the same system can be used for all other regulatory reporting and calculation requirements, greatly reducing the cost and complexity of compliance.

AxiomSL’s solution automates the process of calculating and reporting conservative and countercyclical capital buffers. When users upload their data to the AxiomSL platform, it is enriched and validated, and users are given the ability to make manual adjustments. The data is then used to run all of the necessary CRD IV capital and risk-weighted asset (RWA) calculations, including credit risk, market risk, operational risk, credit valuation adjustments, default fund contribution and leverage ratio.

Users can drill down into the calculations that are run by AxiomSL’s solution and can see how the EBA’s standard rules have been applied. Each of the standard rules implemented in the AxiomSL platform includes a reference to the corresponding article in CRD IV. This makes it easy for users to understand how AxiomSL has interpreted every article of the directive. It allows them to verify the numbers that are being produced by the solution and it facilitates auditing of the process.

When the capital calculations have been completed, users can review the results and check whether they are as expected, based on trend analysis and thresholds. If necessary, they can adjust the input data. Once they are satisfied with the numbers produced, users can sign off on them. The numbers will then be automatically converted into the EBA’s XBRL taxonomy and submitted to their local regulator.

Users also have the option to use the results of the capital calculations to create a client results cube, which can be enriched with additional, client-specific data. This cube gives users management information (MI) about their capital calculations, including data about individual organizational and product hierarchies. In addition, AxiomSL’s solution can calculate how much each level in a bank’s organizational structure (e.g. each line of business or each desk) must contribute towards its capital requirements.

AxiomSL continually monitors changes to the CRD IV requirements and makes the necessary upgrades to its solution. It gives users ongoing access to earlier iterations of the EBA’s standard rules and XBRL taxonomy. These are important when rerunning or resubmitting reports.

The CRD IV capital calculations solution is built on the same platform as all of AxiomSL’s other offerings. This ‘one platform’ approach ensures consistency across reports submitted for different regulations. It also reduces cost and complexity because clients do not need to maintain separate systems to comply with different regulations.

CRD IV: Capital Calculations Solution Diagram


CRD IV: FINREP Solution Diagram


CRD IV: Capital Calculations Benefits



Net Capital Calculations Challenges


CRD IV is the implementation in Europe of Basel III. It introduces new requirements in relation to the way banks, building societies and investment firms calculate and report on their capital.

Financial firms across Europe must implement new capital buffers. These include the conservative capital buffer, which applies to all firms, and the countercyclical buffer, which is being implemented at the discretion of local regulators.

In order to calculate their capital buffers, firms must determine their exposure to a wide variety of risk types, using methods outlined by the EBA in its Single Rulebook. The calculations involve enormous quantities of data from multiple sources, which must be enriched and validated before it is used.

When they have calculated their capital buffers, firms must report them to their regulator using the EBA’s XBRL taxonomy.


CRD IV: Capital Calculations Credit Risk



CRD IV: Capital Calculations Operational Risk



CRD IV: Capital Calculations Market Risk


Options

Equity

Commodity

Interest Rate

FX

CIU


CRD IV: Capital Calculations Large Exposures


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