Fundamental elements of a bank's capital planning process issued by the Basel Committee

The Basel Committee is today issuing A Sound Capital Planning Process: Fundamental Elements, which sets out sound practices that foster overall improvement in banks' capital planning practices.

An important lesson from the financial crisis points to the need for banks to improve and strengthen their capital planning processes. Some of the observed weaknesses reflected processes that were not sufficiently comprehensive, appropriately forward-looking or adequately formalised. As a consequence, some banks underestimated the risks inherent in their business strategies and, in turn, misjudged capital needs. Sound planning processes enable bank management to make informed judgments about the appropriate amount and composition of capital needed to support the bank's business strategies across a range of potential scenarios and outcomes.