Many banks today use a top-down model for planning and budgeting purposes. The typical two-step method involves first evolving the current balance sheet forward, and then projecting growth forward. The forecasted balance sheet is then used to forecast the capital required to support the bank's expected balance sheet.
In this paper, we describe the standard process a typical bank goes through today, along with the many manual interactions required to generate a business budget that is in line with the strategic guidance of the bank's board of directors (BOD). This method typically falls short of providing a budget and optimal capital deployment based on a risk-adjusted view of the world.
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