Internal Capital Adequacy Assessment (ICAAP)
Internal Capital Adequacy Assessment Process (ICAAP) is based on internationally accepted guidance and best practices. The guideline is based on the principle that “stress testing” is a key tool for board and management to use when making decisions about risk management, capital and liquidity management; and as a key tool in guiding overall business strategy.
ICAAP can be utilized to validate risk management practices, risk mitigation processes and risk tolerances. Potential changes in market conditions will be identified and the related financial outcomes to credit unions evaluated. This information is included and can be used for decision making processes for boards in developing the credit union’s risk appetite, risk exposure limits and capital targets.
At the end of this process your credit union’s ICAAP will be complete and integrated with your ERM process. The final report will include the completed spreadsheet, along with a summary report of the regulatory capital requirements, Pillar I and II risks, the reverse stress test, and projections.