Quantification Layer
Assessment Methodology
Explain how risks are measured, converted into capital, and aggregated with suitable conservatism.
Economic capital methodology
Pillar 1 and Pillar 2 alignment
Risk quantification by category
Aggregation, diversification and conservatism
Quantification objective
This layer converts material risk assessment into an internal capital view. It should explain model choices, expert judgment, overlays, and limitations by risk type.
Common areas to document
- credit, concentration, market, IRRBB, operational, and strategic risk treatment
- confidence levels and time horizons
- aggregation logic and diversification assumptions
- any expert judgment that changes model output
Assurance angle
The methodology should show where independent review, validation, or second-line challenge is expected to test parameter choices and assumptions.
Next actions
Translate the framework into institution-specific policies and evidence packs.
Link methodology choices to ICAAP governance forums, MI, and challenge records.
Document management overlays and validation judgments explicitly.