Calculating the Right Capital Level
A bank’s ability to out-earn its cost of capital determines its profitability and ultimately, its long-term independence. The right capital level is a highly individualized metric that must take into account the organization’s business model and risk tolerance, says Matthew Forgotson, a principal and managing director with Performance Trust Capital Partners. Too much capital can be nearly as risky as too little capital, and it’s the board’s job to hold management accountable for capital allocation decisions.
Topics discussed include:
- Regulatory Expectations
- The Risks of Too Much Capital
- Multi-Scenario Analysis
The above video is part of Bank Director’s Online Training Series. To learn more, view Fundamentals of Capital Planning.
Matthew Forgotson
Matt Forgotson is a managing director at Performance Trust Capital Partners, LLC, which he joined in 2020. He works with hundreds of community banks, helping them apply analytical principles to balance sheet decision-making. Previously, Mr. Forgotson spent a decade at Sandler O’Neill/Piper Sandler, most recently as director of balance sheet analysis and strategy. He also served as a senior equity research analyst covering small- and mid-cap banks and thrifts nationwide. In 2018, he earned dual StarMine Analyst Awards for investment recommendations and earnings projections. A fourth-generation community banker, Mr. Forgotson is a frequent speaker at financial conferences and Performance Trust University® programs. His insights have appeared in Bank Director Magazine, American Banker, S&P Global Market Intelligence, and various state banking journals. He is Series 7, 30, 63, 79, 86, and 87 registered.