Current Methodology

A description of how models and assessments for each of the major risks have been approached and the main assumptions made.

For instance, banks may choose to base their ICAAP on the results of Pillar 1 risks calculation with additional risks (e.g. concentration risk, interest rate risk in the banking book, etc.) assessed separately and added to Pillar 1. Alternatively, a bank may decide to base their ICAAP on internal models for all risks, including those covered under Pillar 1 (i.e. Credit, Market and Operational Risks) as additional risks.

The description would make clear which risks are covered by which modeling calculation or approach. This would include details of the models, methodology and process used to calculate risks in each of the categories identified and reason for choosing the models and method used in each case.

Future Approach and Methodology

Banks may provide a summary on the future models and methodologies being considered and developed including their strengths and weaknesses.

Internal Models: Pillar 1 and ICAAP comparisons

Should the internal models vary from any regulatory models approved for pillar 1 purposes, this section would provide a detailed comparison explaining both the methodological and parameterization differences between the internal models and the regulatory models and how those affect the capital measures for ICAAP purposes.