What is the purpose of the ICAAP under Basel?
A core Risk & Compliance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The ICAAP, or Internal Capital Adequacy Assessment Process, requires banks to assess their own capital adequacy relative to their risk profile and business strategy. It goes beyond regulatory minimums by considering all material risks, including those not fully captured by Pillar 1, such as concentration risk, interest rate risk in the banking book, and reputational risk. The goal is to ensure the bank has sufficient capital to withstand stress events and to align capital planning with risk appetite.
WHAT INTERVIEWERS LISTEN FOR
- ✓Self-assessment of capital adequacy
- ✓Covers all material risks beyond Pillar 1
- ✓Aligns capital with risk appetite and strategy
- ✓Stress testing and forward-looking
COMMON MISTAKES
- ✗Saying it's just regulatory minimum
- ✗Ignoring non-Pillar 1 risks
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