Basel regulations require banks to provide quarterly Capital Numbers reports, including Exposure at Default and Risk Weighted Assets calculations. Significant variances require line-by-line commentary down to the counterparty and individual trade levels. Analyzing and explaining the variance can take expensive analysts weeks and is prone to human error. These commentaries are used to inform the Chief Financial Officer and Chief Risk Officer about changes in earnings, which will dictate trading strategy and assist them with quarterly earning calls. Given the volume of new and matured trades within a quarter, this can be a huge task. For most, this process is strictly manual and typically takes weeks to compile the comments required, and as a result is prone to human error and is an inefficient use of valuable analyst time. To address this inefficient process, Synechron has developed the Capital Walk Forward accelerator, using a combination of two Artificial Intelligence (AI) techniques, Machine Learning and Natural Language Generation (NLG) to automate the compilation process) to calculate variances, identify influencing factors, and generate the required commentary for manual validation and distribution.

The Capital Walk Forward accelerator is based on a set of rules used to calculate exposure and prioritize what is driving EAD and RWA for Counterparty Credit Risk in Wholesale Trading. However, the accelerator extends beyond acting as a simple variance checker and applies business logic to identify market conditions driving the variance.

Read our latest thought leadership article on Addressing Basel IV Using Artificial Intelligence by our subject-matter experts.