Building a Fortress Balance Sheet - Chase

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Insights for America’s Business Leaders

Building A Fortress Balance Sheet:
Protect Your Bank’s Financial Health While Positioning It For Growth

Executive Summary: - The Vauban Model - Current Market Overview - Stress Testing and the Fortress Balance Sheet - Capital-Raising Strategies

“Ultimately, market participants themselves must address the fundamental sources of financial strains – through deleveraging, raising new capital and improving risk management.”1 – Ben Bernanke

The Vauban Model
Throughout the remainder of the year, banks’ capital needs will accelerate as credit losses are expected to continue, despite easing monetary policies and government intervention. To weather the turbulence in an economy that
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And don’t be alarmed if we continue to see more of this as the market tries to find a floor on valuations. Faced with this situation, you and your management team should take steps to raise capital now if there is a projected capital need. After all, there is no guarantee that market conditions are going to improve in the short term, and they could just as easily erode further.

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“Our primary concern right now – my primary concern – is the stability of our financial system, the orderliness of the markets, and that’s where our focus is.”3 – Henry Paulson, Secretary of the Treasury

Play Strong Defense
In anticipation of that other shoe dropping and the additional credit stress that could ensue, consider the following strategies and start building an unassailable defensive position.

Stress Test Your Asset Classes
Stress testing is a pre-emptive risk management process designed to help determine the impact of charge-offs against your current capital levels and the amount of capital you’ll need to fill the holes caused by lost earnings. This scenario planning enables you to project peak potential losses by asset type within a specified geography over a defined time horizon. Typically, analytics are applied against a range of potential situations:

Estimated Peak Losses: Expected 2008 Charge-off Rates ($MM)
Asset Class 1-4 Family mortgages Estimated
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