Challenge
With the introduction of the new version of the Capital Requirements Regulation (CRR3), effective from January 1, 2025, a major international bank was compelled to implement changes in the calculation of risk-weighted assets and capital requirements for credit institutions. The new regulation introduced stricter and more risk-sensitive standardized approaches for credit, market, and operational risks while limiting the use of internal models. For the financial institution, it was critical not only to comply with regulatory requirements but also to optimize the calculation process to ensure it was efficient, transparent, and sustainable in the long term.
An internal analysis revealed that incremental updates to existing calculations would not be efficient in the long run. A comprehensive solution was therefore needed—one that would not only fully comply with the regulation but also provide flexibility for future changes and deliver added value to business users.
Solution
A team of data specialists from Ness, the bank, and regulatory experts developed an efficient calculation service integrated into the data warehouse. The key features of the solution were its high modularity and user-friendliness. Instead of making incremental adjustments to the existing system, a new unified and autonomous solution was designed—a general calculator that enables parallel calculations under both CRR3 and the previous CRR2 regulation.
A second option considered was deploying a commercial application offering a similar service, but this would have required costly infrastructure and complex integration into the data warehouse. The internal team, in collaboration with external specialists, therefore opted for in-house development, ensuring full control over the system’s functionality and flexibility for future adjustments.
The general calculator not only facilitates standard capital requirement calculations but also allows manual triggering of stress scenario simulations or calculations over hypothetical datasets. Implemented as a data service on the Oracle platform, the solution significantly enhances processing efficiency and result transparency.
Results
The new system brought significant improvements in the automation and standardization of capital requirement calculations. Key benefits include:
– Full compliance with CRR3 – The system was designed to meet current regulatory requirements while allowing flexible responses to future changes.
– Increased efficiency – Automated calculations replaced manual processes, reducing errors and speeding up data processing.
– Transparency for business users – The calculator enables users to manually run simulations and work with the system without requiring IT support.
– Cost reduction – Using an internally developed solution instead of a commercial application resulted in significant savings on licensing and infrastructure costs.
– Technological autonomy – The financial institution retained full control over the system, facilitating easy scalability and integration with other processes.
The modularity and generalization of the entire solution opened up new possibilities for simulations and testing of various scenarios, strengthening the institution’s ability to adapt to a rapidly changing regulatory environment. Thanks to close collaboration between the technical and business teams, a robust tool was created that not only meets regulatory requirements but also adds value to risk management and strategic decision-making.
Interested in learning more? Contact us at nesscz@ness.com.