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ICC Banking Commission London Technical Meeting - Regulations

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ICC Banking Commission London Technical Meeting - Regulations

  1. 1. Date: November 2017 INTERNAL - EXTERNAL Regulations: What is changing? How does this impact Global Trade?
  2. 2. 2 What Is Happening With Credit Risk – Likely Final Rules INTERNAL - External Asset Class Existing Approach Proposed Approach Likely Final Rules Banks + FI Internal Ratings Based Approach (IRBA) Standardised IRBF Corporate Assets > Eur 50 bln IRBA, IRBF, Standardised Standardised Asset Threshold Increased to Eur100bln IRBF Corporate Assets ≤ Eur 50 bln Revenues > Eur 200 mln IRBA, IRBF, Standardised IRBF Revenue Threshold Increased to Eur ? Remains on IRBF Corporate Assets ≤ Eur 50 bln Revenues < Eur 200 mln IRBA, IRBF, Standardised IRBA Revenue Threshold Increased to Eur ? Remains on IRBA Commodity Lending IRBA, IRBF, Slotting, Standardised Slotting, Standardised IRBA, IRBF Pending Finalisation of Granular Slotting Approach * Source: Basel Committee Publications Based on IIF/AFME Proposals
  3. 3. 3 What Is Happening With Credit Risk – Likely Final Rules INTERNAL - External Risk Parameter Existing Treatment Proposed Treatment Likely Final Rules Probability of default (PD) 3bps 5bps 5bps Loss-given-default (LGD) Unsecured No Floor 25% 25% Loss-given-default (LGD) Secured Collateral Financial : 0% Receivables : 35% Commercial Real Estate (CRE) : 35% Collateral Financial : 0% Receivables : 15% CRE : 15% Other Physical: 20% Collateral Financial : 0% Receivables : 15% CRE : 15% Other Physical: 20% Loss-Given Default (LGD) • Floors applicable only to IRBA • Increase in haircuts for non-financial collateral • Decrease in LGDs for non-financial collateral • Removal of required minimum collateral
  4. 4. 4 What Is Happening With Credit Risk – Likely Final Rules INTERNAL - External Risk Parameter Existing Treatment Proposed Treatment Likely Final Rules Exposed-At-Default (EAD) : Credit Conversion Factor (CCF) IRBF : 20 / 50 / 100% IRBA : Modelled values IRBF : No Change IRBA : Floored at 50% Using STD Approach CCF Removal of 0% CCF IRBF: ? IRBA: ? Maturity (M) IRBF : 2.5 years (National Discretion to Waive) IRBF : No Change IRBF: No Change (National Discretion to wave) Maturity (M) IRBA : Based on Transaction tenor + cashflows. Subject to a cap 5 years IRBA : Based on facility review date Residual Maturity?
  5. 5. 5 What is Happening with the Standardised Approach INTERNAL - External External rating of counterparty AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Base Risk Weight 20% 50% 50% 100% 150% Risk Weight for short term exposure 20% 20% 20% 50% 150% Bank Exposures External Credit Risk Assessment Approach (ECRA) Standardised Credit Risk Assessment Approach (SCRA) Credit Risk Assessment of counterparty Grade A Grade B Grade C Base Risk Weight 50% 100% 150% Risk Weight for short term exposure 20% 50% 150% Base Risk Weight Multilateral Development Bank’s (MDB) External rating of counterparty AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- Below BB- Unrated Base Risk Weight 20% 50% 50% 100% 150% 50%
  6. 6. 6 What is Happening with the Standardised Approach INTERNAL - External External rating of counterparty AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- Below BB- Unrated* Base Risk Weight 20% 50% 100% 100% 150% 100% Corporate Exposures External Credit Risk Assessment Approach (ECRA) Specialised lending Risk Weight Commodities Finance 120% Project Finance (Pre-operational phase) 150% Project Finance (Operational phase) 100% Land acquisition / Development 150% Loan to Value Ratio (LTV) Commercial Real Estate Finance LTV ≤ 60% 60% < LTV ≤ 80% LTV > 80% 80% 100% 130% • In jurisdictions where there are no external ratings, base risk weight is 100% • Small + Medium Enterprises (SME): 85% Risk Weight (Turnover less than 50mln)
  7. 7. 7 Capital Floor INTERNAL - External • Ensure level of capital across the banking system does not fall below a certain level • Mitigate model risk and measurement error stemming from internally modelled approaches • Enhance comparability of capital outcomes across banks Key questions to be addressed • Is the floor applied to each major risk category - credit , market and operational risk • Alternatively is it a floor based on aggregate RWA’s • Risk category based floors do not allow offsetting across risk types: Market, Credit, Operational • What level will the capital floor be set at ?

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