Regulations and standards have evolved in response to issues revealed by the 2007 financial crisis. Basel 2 aimed to better capture credit, market, and operational risk, while Basel 2.5 focused on risks from extreme events and Basel 3 aimed to strengthen capital requirements and address systemic risk and liquidity risk. Accounting standards like IFRS 9 and IFRS 13 also evolved to converge with prudential rules regarding areas like impairment models and fair value measurement. The standards have broadened in scope to establish more comprehensive frameworks for risk management across different areas.
CAIIB Super Notes: Bank Financial Management: Module D: Balance Sheet Managem...PsychoTech Services
This document discusses liquidity management in banks. It defines liquidity as a bank's ability to meet deposit withdrawals and fund loan demands. The key aspects of liquidity management covered include:
1. Measuring and managing liquidity risk using the stock and flow approaches. The flow approach involves constructing a maturity ladder to assess net funding requirements over time horizons.
2. Setting tolerance limits for liquidity risk metrics like loan-to-deposit ratios to ensure adequate liquidity buffer.
3. Developing a liquidity risk management framework involving board oversight, risk measurement processes, and contingency planning for liquidity crises.
4. Managing liquidity in foreign currencies requires decisions around centralized vs decentralized management
CAIIB Super Notes: Bank Financial Management: Module D: Balance Sheet Managem...PsychoTech Services
This document provides an overview of interest rate risk management. It discusses the essentials of interest rate risk, sources of interest rate risk such as gap risk and basis risk, effects of interest rate risk on earnings and economic value, techniques for measuring interest rate risk including repricing schedules, gap analysis, and duration, strategies for controlling interest rate risk like reducing asset or liability sensitivity, controls and supervision of interest rate risk management practices, and sound interest rate risk management practices including board oversight and defined roles and responsibilities. The document is from a study guide on interest rate risk management for the CAIIB exam.
This document discusses developing an effective Internal Capital Adequacy Assessment Process (ICAAP). It outlines the key components of an ICAAP including risk governance, risk appetite, risk-bearing capacity, material risk assessment, capital modeling, forecasts and stress testing. It discusses challenges in implementing an ICAAP and the roles of risk management, finance, internal audit and senior management/board oversight. Maintaining an ongoing and regularly reviewed ICAAP is emphasized.
Introduction to Operational Risk Management for Bank Junior Officers in Indiamlvenkat
This is an introductory, self-explanatory presentation on Operational Risk Management for Junior officers in Banks in India, illustrated with lots of interesting images to make the concepts easy to understand. Follow the link at the end of the slides to read interesting Op Risk stories compiled from day to day banking, which can be used for group exercise or better personal understanding. (Answers are not given! You have to generate them yourselves or from team members ! ).
(The story on Corporate Banking may appear similar to the recent Banking scam -Feb 2018- in India, but then, similar frauds have been repeatedly happening in one Bank or the other in the last 30 years in India. Neither Commercial Banks in India nor Reserve Bank of India have learnt the operational risk lessons).
You are free to use the slides and my stories for your work.
You can customise the stories to suit your banking environment and/or to add your own Bank stories to build up a library of Op Risk events.
I acknowledge and thank Internet and all original creators for providing cartoons, illustrations, photos, jokes and information which I have liberally used in the PPT.
The Basel II accord establishes three pillars for regulating banks' capital requirements:
1. Pillar I sets minimum capital standards to cover credit, market, and operational risks using standardized or advanced approaches.
2. Pillar II involves supervisory review of banks' risk management strategies and capital adequacy plans. Supervisors ensure banks hold capital above minimum levels.
3. Pillar III promotes market discipline through disclosure requirements for banks to publish details of their risk exposures and capital adequacy.
The objectives of Basel II are to promote banking system safety and soundness, enhance competitive equality, and make capital requirements more risk sensitive through a more comprehensive approach to risk management.
A Tale of Two Risk Measures: Economic Capital vs. Stress Testing and a Call f...Xiaoling (Sean) Yu Ph.D.
In this presentation that I gave in the 9th Annual Capital Allocation and Stress Testing Conference, I advocated for a coherent risk management framework that integrates Economic Capital and Stress Testing, after compared and contrasted the two.
The document discusses operational risk and provides guidance on defining, identifying, measuring, monitoring, controlling, and mitigating operational risk according to the Basel Committee on Banking Supervision. It addresses issues with operational risk loss data and outlines principles for developing an appropriate operational risk management environment, process, and framework. The document also examines challenges with using internal and external loss data for quantifying operational risk capital requirements.
CAIIB Super Notes: Bank Financial Management: Module D: Balance Sheet Managem...PsychoTech Services
This document discusses liquidity management in banks. It defines liquidity as a bank's ability to meet deposit withdrawals and fund loan demands. The key aspects of liquidity management covered include:
1. Measuring and managing liquidity risk using the stock and flow approaches. The flow approach involves constructing a maturity ladder to assess net funding requirements over time horizons.
2. Setting tolerance limits for liquidity risk metrics like loan-to-deposit ratios to ensure adequate liquidity buffer.
3. Developing a liquidity risk management framework involving board oversight, risk measurement processes, and contingency planning for liquidity crises.
4. Managing liquidity in foreign currencies requires decisions around centralized vs decentralized management
CAIIB Super Notes: Bank Financial Management: Module D: Balance Sheet Managem...PsychoTech Services
This document provides an overview of interest rate risk management. It discusses the essentials of interest rate risk, sources of interest rate risk such as gap risk and basis risk, effects of interest rate risk on earnings and economic value, techniques for measuring interest rate risk including repricing schedules, gap analysis, and duration, strategies for controlling interest rate risk like reducing asset or liability sensitivity, controls and supervision of interest rate risk management practices, and sound interest rate risk management practices including board oversight and defined roles and responsibilities. The document is from a study guide on interest rate risk management for the CAIIB exam.
This document discusses developing an effective Internal Capital Adequacy Assessment Process (ICAAP). It outlines the key components of an ICAAP including risk governance, risk appetite, risk-bearing capacity, material risk assessment, capital modeling, forecasts and stress testing. It discusses challenges in implementing an ICAAP and the roles of risk management, finance, internal audit and senior management/board oversight. Maintaining an ongoing and regularly reviewed ICAAP is emphasized.
Introduction to Operational Risk Management for Bank Junior Officers in Indiamlvenkat
This is an introductory, self-explanatory presentation on Operational Risk Management for Junior officers in Banks in India, illustrated with lots of interesting images to make the concepts easy to understand. Follow the link at the end of the slides to read interesting Op Risk stories compiled from day to day banking, which can be used for group exercise or better personal understanding. (Answers are not given! You have to generate them yourselves or from team members ! ).
(The story on Corporate Banking may appear similar to the recent Banking scam -Feb 2018- in India, but then, similar frauds have been repeatedly happening in one Bank or the other in the last 30 years in India. Neither Commercial Banks in India nor Reserve Bank of India have learnt the operational risk lessons).
You are free to use the slides and my stories for your work.
You can customise the stories to suit your banking environment and/or to add your own Bank stories to build up a library of Op Risk events.
I acknowledge and thank Internet and all original creators for providing cartoons, illustrations, photos, jokes and information which I have liberally used in the PPT.
The Basel II accord establishes three pillars for regulating banks' capital requirements:
1. Pillar I sets minimum capital standards to cover credit, market, and operational risks using standardized or advanced approaches.
2. Pillar II involves supervisory review of banks' risk management strategies and capital adequacy plans. Supervisors ensure banks hold capital above minimum levels.
3. Pillar III promotes market discipline through disclosure requirements for banks to publish details of their risk exposures and capital adequacy.
The objectives of Basel II are to promote banking system safety and soundness, enhance competitive equality, and make capital requirements more risk sensitive through a more comprehensive approach to risk management.
A Tale of Two Risk Measures: Economic Capital vs. Stress Testing and a Call f...Xiaoling (Sean) Yu Ph.D.
In this presentation that I gave in the 9th Annual Capital Allocation and Stress Testing Conference, I advocated for a coherent risk management framework that integrates Economic Capital and Stress Testing, after compared and contrasted the two.
The document discusses operational risk and provides guidance on defining, identifying, measuring, monitoring, controlling, and mitigating operational risk according to the Basel Committee on Banking Supervision. It addresses issues with operational risk loss data and outlines principles for developing an appropriate operational risk management environment, process, and framework. The document also examines challenges with using internal and external loss data for quantifying operational risk capital requirements.
The document discusses various aspects of risk management and capital requirements under Basel II. It provides explanations of key concepts such as economic capital, regulatory capital, credit risk measurement approaches, operational risk approaches, and credit risk mitigation techniques. It also compares the standardized and internal ratings-based approaches for credit risk and provides examples of calculating risk-weighted assets and capital adequacy ratios.
Basel III and its impact on the Indian banking sector. Basel I, II, and III are international banking accord that set capital requirements for banks to reduce risks. Basel III strengthens bank capital and liquidity rules following the 2008 crisis. For India, Basel III means banks must increase capital, manage liquidity risks better, and improve transparency. This will impact bank profitability, capital raising, and consolidation in the Indian banking system.
The Securities Financing Transaction Regulation (SFTR) aims to increase transparency of securities financing transactions and total return swaps in the shadow banking system. It requires reporting of SFTs to trade repositories and new disclosure requirements for investors. Key areas of impact include increased transparency of collateral reuse practices, new periodic reporting obligations for fund managers, and same-day reporting of SFTs to trade repositories. The regulation applies to a range of financial entities and transactions within the EU and has a phased implementation timeline between 2016-2020.
This document provides an overview and summary of the Basel III accords and their implementation in the United States. It discusses key provisions of Basel III including revised definitions of regulatory capital, capital buffers, risk-weighted assets, leverage ratios, liquidity requirements, and disclosures. It outlines which US banking organizations are subject to Basel III and to what extent based on their size. The document also discusses implications for banking organizations and options they should consider to evaluate their compliance with the new requirements.
The regulation of banking industry (basel accord)Amrita Debnath
The document summarizes the Basel Accords, which are international agreements that establish regulations on bank capital adequacy. Basel I established minimum capital requirements and risk weightings for assets. Basel II introduced more risk-sensitive capital requirements and three pillars for supervision. Basel III strengthened capital requirements after the 2008 crisis by requiring higher quality capital reserves and introducing leverage ratios and liquidity standards. The accords aim to promote global financial stability by reducing risk in the banking system.
The document provides an overview of Basel II, including its background, main elements, and implementation process. It discusses:
- The three pillars of Basel II - minimum capital requirements, supervisory review, and market discipline.
- The different approaches for calculating capital requirements for credit, operational, and market risk. This includes standardized and internal ratings-based approaches.
- The importance of the supervisory review process in Pillar 2 for banks to assess their capital adequacy beyond regulatory minimums.
- The role of enhanced disclosure in Pillar 3 to improve market discipline.
It emphasizes that countries should consider their own banking system's readiness before implementing Basel II and that there is no single approach, with
Basel III is an international regulatory framework that strengthens bank capital requirements in response to the financial crisis. It builds on Basel II and introduces new regulations on bank capital, liquidity, and risk. The three pillars from Basel II are maintained: minimum capital requirements, supervisory review, and market discipline. Major changes include higher and better quality capital, countercyclical capital buffers, leverage ratio restrictions, and liquidity standards like the Liquidity Coverage Ratio. Implementation began in 2013 and will be fully phased in by 2019. The goals are to strengthen financial stability and banking sector resilience to economic stress.
KPMG-NYBA US Basel III Capital Requirement for Community Banks Presentation D...sarojkdas
The document summarizes key aspects of the US Basel III regulatory capital requirements for small cap banks, specifically those with less than $15 billion in assets. It outlines the higher minimum capital ratio requirements being implemented, including a new common equity tier 1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets. It also discusses changes to risk weights for various asset classes and the phase-in periods for the requirements.
Outlook and market survey on the fresh Standards for Minimum capital requirements for market risk, published January 14th, 2016.
FRTB will deeply impact banks on IT, process, organization and human aspects.
CH&Co can help banks cope with these changes.
RBI Grade B Phase II Descriptive Super Notes: Finance and ManagementPsychoTech Services
Reserve Bank of India Grade B Exam Super Notes: If you are preparing for Phase II of the Grade B examination of Reserve Bank of India - these are a must-have. Visit http://sirfbusiness.blogspot.com for more info.
---
This is work in progress, may or may not be completed.
Economic Capital Model and System implementationsarojkdas
This document discusses frameworks and solutions for risk and capital management. It addresses establishing an enterprise risk management framework, optimizing capital allocation by linking risk to capital, and maximizing risk-adjusted returns. It emphasizes the importance of building these frameworks on a strong data and analytics foundation with continuous measurement and optimization. It also discusses identifying and quantifying total risk, allocating economic capital, and scenario analysis as part of an internal capital adequacy assessment process.
This document provides an overview of the Basel III regulatory framework including its objectives, key elements, and implications. The main points are:
1) Basel III aims to strengthen bank capital requirements and introduce new regulatory standards on bank liquidity and leverage. It seeks to improve banks' ability to absorb shocks and reduce risk spillovers.
2) Key elements of Basel III include higher and better quality capital requirements, a supplementary leverage ratio, additional capital charges for counterparty credit risk, and two mandatory liquidity ratios.
3) Implementation of Basel III is expected to narrow the capital shortfall of global banks but may reduce GDP growth slightly. Indian banks currently have high capital levels but some may face challenges meeting new
Basel II is an international standard that aims to strengthen the regulation, supervision and risk management within the banking sector. It improves upon Basel I by making capital requirements more risk sensitive and aligning regulatory capital more closely with underlying bank risks. Basel II consists of three pillars that cover minimum capital requirements, supervisory review, and market discipline. Implementation of Basel II varies across countries and regulators but aims to modernize capital adequacy standards to be more comprehensive and risk sensitive.
Basel III is the third set of banking regulations by the Basel Committee that aims to improve banks' ability to withstand financial and economic stress through better risk management, governance, transparency, and capital adequacy requirements. It establishes minimum capital requirements calculated based on credit, market and operational risk, as well as capital buffers, leverage ratios and liquidity ratios to increase banks' resilience. The regulations also strengthen supervisory review and market discipline through improved disclosures.
This document discusses topics related to developing an advanced economic capital model. It covers the purpose and principles of capital models, major components, uses of the models, and approaches to building them. Specific topics covered include validation considerations, calibration approaches, modeling correlation in extreme events, and incorporating emerging risks. The overall goal of an economic capital model is to quantify an insurer's risk profile and determine its capital requirements.
The document provides an overview of key changes under the Fundamental Review of the Trading Book (FRTB). Some key points include:
- Internal model approvals will be done at a more granular trading desk level rather than bank level. Desks will also face new profit and loss attribution tests.
- Value-at-Risk and Stressed Value-at-Risk will be replaced by Expected Shortfall as the single risk measure for internal models. Expected Shortfall will be based on a 1-year stress period.
- Liquidity risk will be defined at the risk factor level rather than position level. Standardized liquidity horizons of 10, 20, 40, 60, 120 days will be
This paper was presented at the SAFA Workshop on Impact of Basel II, held on September 8, 2014 in Dhaka, Bangladesh. By Sayyid Mansoob Hasan, FCMA - Chairman SAFA Task Force to develop a strategy to combat corruption in SAARC Region.
SAFA: South Asian Federation of Accountants
The document discusses strategies for transforming HR departments, including outsourcing administrative functions, focusing on business partnership, automating processes, and redesigning processes for efficiency. It provides examples of common outsourced HR functions and the main benefits seen as cost reduction, expertise, flexibility, and allowing HR to focus on strategic work. Key success factors for outsourcing include having a clear strategy, feasibility study, proper vendor selection, and effective transition and oversight.
Chappuis Halder & Cie is an international consulting firm with experience in major financial services projects around the world. They focus on improvement and turnkey business solutions with short-term deployment and results. Their consultants are experienced professionals who are passionate about their work and focused on bringing value to customers in sectors like retail banking, insurance, trading, and corporate/investment banking. They work closely with clients' teams to deliver consulting projects across all activities of investment banking.
The document discusses various aspects of risk management and capital requirements under Basel II. It provides explanations of key concepts such as economic capital, regulatory capital, credit risk measurement approaches, operational risk approaches, and credit risk mitigation techniques. It also compares the standardized and internal ratings-based approaches for credit risk and provides examples of calculating risk-weighted assets and capital adequacy ratios.
Basel III and its impact on the Indian banking sector. Basel I, II, and III are international banking accord that set capital requirements for banks to reduce risks. Basel III strengthens bank capital and liquidity rules following the 2008 crisis. For India, Basel III means banks must increase capital, manage liquidity risks better, and improve transparency. This will impact bank profitability, capital raising, and consolidation in the Indian banking system.
The Securities Financing Transaction Regulation (SFTR) aims to increase transparency of securities financing transactions and total return swaps in the shadow banking system. It requires reporting of SFTs to trade repositories and new disclosure requirements for investors. Key areas of impact include increased transparency of collateral reuse practices, new periodic reporting obligations for fund managers, and same-day reporting of SFTs to trade repositories. The regulation applies to a range of financial entities and transactions within the EU and has a phased implementation timeline between 2016-2020.
This document provides an overview and summary of the Basel III accords and their implementation in the United States. It discusses key provisions of Basel III including revised definitions of regulatory capital, capital buffers, risk-weighted assets, leverage ratios, liquidity requirements, and disclosures. It outlines which US banking organizations are subject to Basel III and to what extent based on their size. The document also discusses implications for banking organizations and options they should consider to evaluate their compliance with the new requirements.
The regulation of banking industry (basel accord)Amrita Debnath
The document summarizes the Basel Accords, which are international agreements that establish regulations on bank capital adequacy. Basel I established minimum capital requirements and risk weightings for assets. Basel II introduced more risk-sensitive capital requirements and three pillars for supervision. Basel III strengthened capital requirements after the 2008 crisis by requiring higher quality capital reserves and introducing leverage ratios and liquidity standards. The accords aim to promote global financial stability by reducing risk in the banking system.
The document provides an overview of Basel II, including its background, main elements, and implementation process. It discusses:
- The three pillars of Basel II - minimum capital requirements, supervisory review, and market discipline.
- The different approaches for calculating capital requirements for credit, operational, and market risk. This includes standardized and internal ratings-based approaches.
- The importance of the supervisory review process in Pillar 2 for banks to assess their capital adequacy beyond regulatory minimums.
- The role of enhanced disclosure in Pillar 3 to improve market discipline.
It emphasizes that countries should consider their own banking system's readiness before implementing Basel II and that there is no single approach, with
Basel III is an international regulatory framework that strengthens bank capital requirements in response to the financial crisis. It builds on Basel II and introduces new regulations on bank capital, liquidity, and risk. The three pillars from Basel II are maintained: minimum capital requirements, supervisory review, and market discipline. Major changes include higher and better quality capital, countercyclical capital buffers, leverage ratio restrictions, and liquidity standards like the Liquidity Coverage Ratio. Implementation began in 2013 and will be fully phased in by 2019. The goals are to strengthen financial stability and banking sector resilience to economic stress.
KPMG-NYBA US Basel III Capital Requirement for Community Banks Presentation D...sarojkdas
The document summarizes key aspects of the US Basel III regulatory capital requirements for small cap banks, specifically those with less than $15 billion in assets. It outlines the higher minimum capital ratio requirements being implemented, including a new common equity tier 1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets. It also discusses changes to risk weights for various asset classes and the phase-in periods for the requirements.
Outlook and market survey on the fresh Standards for Minimum capital requirements for market risk, published January 14th, 2016.
FRTB will deeply impact banks on IT, process, organization and human aspects.
CH&Co can help banks cope with these changes.
RBI Grade B Phase II Descriptive Super Notes: Finance and ManagementPsychoTech Services
Reserve Bank of India Grade B Exam Super Notes: If you are preparing for Phase II of the Grade B examination of Reserve Bank of India - these are a must-have. Visit http://sirfbusiness.blogspot.com for more info.
---
This is work in progress, may or may not be completed.
Economic Capital Model and System implementationsarojkdas
This document discusses frameworks and solutions for risk and capital management. It addresses establishing an enterprise risk management framework, optimizing capital allocation by linking risk to capital, and maximizing risk-adjusted returns. It emphasizes the importance of building these frameworks on a strong data and analytics foundation with continuous measurement and optimization. It also discusses identifying and quantifying total risk, allocating economic capital, and scenario analysis as part of an internal capital adequacy assessment process.
This document provides an overview of the Basel III regulatory framework including its objectives, key elements, and implications. The main points are:
1) Basel III aims to strengthen bank capital requirements and introduce new regulatory standards on bank liquidity and leverage. It seeks to improve banks' ability to absorb shocks and reduce risk spillovers.
2) Key elements of Basel III include higher and better quality capital requirements, a supplementary leverage ratio, additional capital charges for counterparty credit risk, and two mandatory liquidity ratios.
3) Implementation of Basel III is expected to narrow the capital shortfall of global banks but may reduce GDP growth slightly. Indian banks currently have high capital levels but some may face challenges meeting new
Basel II is an international standard that aims to strengthen the regulation, supervision and risk management within the banking sector. It improves upon Basel I by making capital requirements more risk sensitive and aligning regulatory capital more closely with underlying bank risks. Basel II consists of three pillars that cover minimum capital requirements, supervisory review, and market discipline. Implementation of Basel II varies across countries and regulators but aims to modernize capital adequacy standards to be more comprehensive and risk sensitive.
Basel III is the third set of banking regulations by the Basel Committee that aims to improve banks' ability to withstand financial and economic stress through better risk management, governance, transparency, and capital adequacy requirements. It establishes minimum capital requirements calculated based on credit, market and operational risk, as well as capital buffers, leverage ratios and liquidity ratios to increase banks' resilience. The regulations also strengthen supervisory review and market discipline through improved disclosures.
This document discusses topics related to developing an advanced economic capital model. It covers the purpose and principles of capital models, major components, uses of the models, and approaches to building them. Specific topics covered include validation considerations, calibration approaches, modeling correlation in extreme events, and incorporating emerging risks. The overall goal of an economic capital model is to quantify an insurer's risk profile and determine its capital requirements.
The document provides an overview of key changes under the Fundamental Review of the Trading Book (FRTB). Some key points include:
- Internal model approvals will be done at a more granular trading desk level rather than bank level. Desks will also face new profit and loss attribution tests.
- Value-at-Risk and Stressed Value-at-Risk will be replaced by Expected Shortfall as the single risk measure for internal models. Expected Shortfall will be based on a 1-year stress period.
- Liquidity risk will be defined at the risk factor level rather than position level. Standardized liquidity horizons of 10, 20, 40, 60, 120 days will be
This paper was presented at the SAFA Workshop on Impact of Basel II, held on September 8, 2014 in Dhaka, Bangladesh. By Sayyid Mansoob Hasan, FCMA - Chairman SAFA Task Force to develop a strategy to combat corruption in SAARC Region.
SAFA: South Asian Federation of Accountants
The document discusses strategies for transforming HR departments, including outsourcing administrative functions, focusing on business partnership, automating processes, and redesigning processes for efficiency. It provides examples of common outsourced HR functions and the main benefits seen as cost reduction, expertise, flexibility, and allowing HR to focus on strategic work. Key success factors for outsourcing include having a clear strategy, feasibility study, proper vendor selection, and effective transition and oversight.
Chappuis Halder & Cie is an international consulting firm with experience in major financial services projects around the world. They focus on improvement and turnkey business solutions with short-term deployment and results. Their consultants are experienced professionals who are passionate about their work and focused on bringing value to customers in sectors like retail banking, insurance, trading, and corporate/investment banking. They work closely with clients' teams to deliver consulting projects across all activities of investment banking.
This document discusses an offshoring program and provides an overview of the key considerations and approach. It outlines the main business drivers for offshoring such as reducing costs through lower salaries and premises costs. It then presents a high-level approach involving a transfer opportunities study, execution/transition phase, and ongoing implementation follow-up and optimization. Some of the main challenges discussed include choosing the right target location, developing a clear strategy, identifying all transfer opportunities, ensuring a smooth transition of processes, and recruiting and retaining skilled resources in the offshore location. Success factors center around thorough planning, clear communication, consistency in the target operating model, and change management.
"Cette publication a pour objectif de renforcer les connaissances sur les enjeux de la gestion des ressources humaines (RH) dans le secteur associatif et de donner des repères favorisant la mise en place d'outils et de politiques RH dans le secteur." Au sommaire :
- Analyse des enjeux de l'accompagnement RH associatif
- Panorama d'acteurs et de ressources utiles
- Retours d'expériences
Case study: Offshore Syndrome and PoliciesPRASAD GHAG
It talks about famous case study of Offshore syndrome and policy. Link to case study: http://www.bloomberg.com/news/articles/2004-12-05/offshoring-the-pros-and-cons-for-europe
The document discusses the key aspects of an offshoring program, including:
1. The business drivers for offshoring such as reducing costs through lower salaries and premises costs, gaining tax incentives, and improving process efficiency.
2. The high-level approach to an offshoring program, which involves studying transfer opportunities, executing the transition, and providing ongoing implementation follow-up and optimization.
3. The main challenges of offshoring such as choosing the right location, developing an effective strategy, conducting a thorough feasibility study, and ensuring a smooth transition process. Success requires in-depth planning and addressing issues related to the target operating model, change management, and governance.
The document discusses approaches to performance optimization through productivity and quality improvement. It describes:
1) Combining Lean and "Day in Life Of" (DILO) approaches to define a customized optimization project, with Lean taking a top-down holistic view and DILO a bottom-up operational focus.
2) How DILO quantitatively measures task times and qualitatively observes processes to identify bottlenecks and improvements.
3) A three-phase methodology involving diagnosing current issues, identifying root causes, and recommending optimized processes, organization, and implementation plans.
The Volcker Rule and French Banking Law (LBF) both regulate proprietary trading and covered funds. The Volcker Rule compliance deadline has been extended to July 2015, requiring a comprehensive compliance program, enhanced controls, and metrics reporting beginning in 2015 or 2016 depending on trading assets/liabilities. The LBF similarly requires proprietary trading separation and enhanced recovery/resolution planning. Implementing both regulations will require assessing business impacts, creating governance/controls, and developing metrics reporting strategies while managing exits if needed.
This document discusses key data and systems requirements for establishing an Intermediate Holding Company (IHC). It outlines four main areas: 1) capital planning and stress testing, 2) single-counterparty credit limits, 3) liquidity management, and 4) reporting requirements. It also describes a four-part approach to data quality assessment and remediation: identifying requirements, assessing quality, developing a remediation plan, and establishing ongoing monitoring and solutions.
1. The document outlines the functional organization and delegation principles for model validation within a bank.
2. Risk has responsibility for controlling the fair value of financial instruments, approving models, and establishing reserves policies. Finance is responsible for financial reporting and delegates model controls to Risk.
3. Other functions like Front Office, Operations, Middle Office, and Back Office play defined roles in deal execution, market parameter validation, and P&L production according to the responsibilities chart.
This document discusses rethinking client onboarding processes in response to increasing regulations. It identifies key regulatory impacts that are driving changes to client onboarding, including more robust client identification and data collection. It also analyzes current challenges faced by banks in onboarding clients, such as fragmented processes, lack of data standardization and system interoperability issues. Finally, it proposes several key success factors for transforming client onboarding, such as establishing a single point of contact, globalizing and standardizing processes, centralizing data, focusing on legal entity identifiers, and implementing ongoing monitoring.
Here are the key points about reverse repo rate from the document:
- Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks.
- It is a monetary policy instrument used by the central bank to control money supply. An increase in reverse repo rate will decrease money supply and vice versa.
- When reverse repo rate is increased, it provides more incentive for commercial banks to park their funds with the central bank, thus decreasing the money available in the market.
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.
This document summarizes key aspects of risk management and capital adequacy from CAIIB modules, including:
- Basel I focused on credit risk and assigned risk weights and factors, while Basel II expanded this to include market and operational risk.
- Pillar 1 of Basel II covers minimum capital requirements calculated for credit, market, and operational risk. Pillar 2 involves supervisory review, and Pillar 3 covers disclosure requirements.
- Components of regulatory capital include Tier 1, Tier 2, and Tier 3 capital. Capital requirements are calculated based on risk-weighted assets.
- Guidelines in India selected the standardized approaches for credit and operational risk and the basic indicator approach for banks to initially adopt
Risk management in banking involves four main steps: identifying risks, measuring them both qualitatively and quantitatively, managing the risks, and monitoring and reviewing risks on an ongoing basis. There are three main categories of risk for banks: credit risk, market risk, and operational risk. Basel II aimed to make capital requirements more risk-sensitive by directly linking capital to the risk levels of counterparties and businesses. It introduced three pillars: minimum capital requirements, supervisory review, and market discipline through disclosure.
The document discusses the impacts and perspectives of the Fundamental Review of the Trading Book (FRTB) regulation. Key points:
1. Market participants provided over 200 comments on the FRTB to the Bank for International Settlements (BIS), with the majority focused on methodological issues in the standardized and internal model approaches.
2. Comments highlighted significant challenges for banks in meeting the requirements, including the short implementation timeframe and substantial investments needed in infrastructure like IT architecture, data management, and organizational changes.
3. While some improvements in the FRTB were welcomed, comments also identified remaining methodological issues like risk insensitivity in certain asset class treatments, and concerns that the non-modellable risk
This document provides an overview of risk management and Basel II. It discusses key concepts such as types of capital, economic capital, regulatory capital, expected and unexpected loss. It also summarizes the three pillars of Basel II including minimum capital requirements, supervisory review process, and market discipline. Approaches for credit risk, operational risk and market risk management under Basel II are outlined. The document also covers topics like value at risk, credit risk mitigation, and best practices in credit risk management.
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It was implemented in response to deficiencies in the previous Basel II framework that were exposed by the global financial crisis. The goals of Basel III include improving the banking sector's ability to absorb shocks, reducing systemic risk, and increasing transparency. It establishes stricter capital standards, introduces capital buffers, and imposes new liquidity measures including the liquidity coverage ratio and net stable funding ratio.
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
This document discusses operational risk management. It begins by defining risk management and the types of risks, including operational risk. It then discusses why operational risk management is important, highlighting some significant operational risk events. It describes tools for identifying and monitoring operational risk, such as loss data collection, risk and control self-assessments, and key risk indicators. It also discusses approaches for measuring operational risk capital requirements under Basel II and III, including the basic indicator approach, standardized approach, and advanced measurement approach. Finally, it notes some challenges in measuring operational risk and ways to mitigate and control operational risk exposures.
The document provides an overview of an operational risk course. The course objectives are to introduce key aspects of operational risk, including definitions, importance of control and quantification, and regulatory frameworks. It outlines course modules that will cover topics such as risk identification, measurement, management tools, and case studies. It also summarizes perspectives on operational risk from industry practitioners, including approaches to improving financial performance and creating a "no surprise" environment through better risk management.
The document discusses operational risk and Basel II regulations. It defines operational risk as losses from internal failures or external events. It outlines the three pillars of Basel II which establish minimum capital requirements, supervisory review, and market discipline. It describes the different approaches for calculating operational risk capital charges, including the Basic Indicator Approach, Standardized Approach, and Advanced Measurement Approach.
Changes to Basel Regulation Post 2008 CrisisIshan Jain
Subprime crisis
Basel Committee objectives and history
Pillars of Basel 2 and Basel 3
Basel 3 Capital Requirements
capital Rations
Capital Buffers
Leverage Ratios
Global Liquidity Standards
macroeconomic factors
Value at Risk
Expected Shortfall
Basel III is a global regulatory standard that aims to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and leverage. It was developed in response to deficiencies in previous regulations that contributed to the global financial crisis. The goals of Basel III include improving the banking sector's ability to absorb shocks from financial and economic stress, reducing risks, and strengthening transparency. Key changes under Basel III include higher and better quality capital buffers, introduction of leverage ratio, liquidity coverage ratio, net stable funding ratio, and capital surcharges for systemically important banks.
SoSeBa Bank - Risk Managment of a fictitious BankAlliochah Gavyn
The document discusses risk management at SoSeBa Bank in Mauritius. It introduces the bank and outlines its mission to provide banking services to the working class population. It then discusses key risks like credit, liquidity, and market risk that the bank needs to measure and manage. It provides an overview of banking regulations in Mauritius as well as international standards like the Basel Accords. The document emphasizes the importance of robust risk management practices like risk modeling, exposure limits, and stress testing for the long-term success of the new bank.
Basel II has three pillars and aims to better align capital requirements with risks. Pillar 1 updates minimum capital requirements to use more risk-sensitive approaches for credit, market, and operational risk. Pillar 2 requires banks and supervisors to review risk management and capital adequacy. Pillar 3 promotes market discipline through disclosure. Vietnam is implementing Basel II in phases, with the goal of fully adopting the three pillar framework by 2018 to strengthen its banking system.
1) The document discusses the causes and effects of the 2008 global financial crisis, comparing it to the 1929 crash. It analyzes factors like loose regulation, risky lending practices, and accounting standards that contributed to hidden economic bubbles bursting.
2) Going forward, the document recommends measures like improving supervision, reforming compensation schemes, and coordinating international regulatory alignment to prevent future crises and promote recovery.
3) While short term economic pressure is expected, stimulus packages and a focus on innovation could help economies recover once clean up of bank balance sheets is complete. Risk management practices will also likely be overhauled.
The document provides an overview of the conceptual framework for financial reporting established by the Financial Accounting Standards Board (FASB). It describes the objectives of the framework to establish standards and solve emerging problems. The framework consists of objectives, elements, and criteria. The objectives are to provide useful information to investors and creditors for decision making. The elements are assets, liabilities, equity, income and expenses. The qualitative characteristics are relevance, reliability, comparability and consistency.
The impact of Basel III, also known as The Third Basel Accord, will vary by geography -- from potentially slowing down economies in emerging nations, to protecting the European Union from financial collapse, to increasing capital adequacy and improving risk management. Given the framework and timeline for implementing Basel III, the burden falls on national regulators to translate the international guidelines into national policies that suit and stabilize their economic environment and support economic growth.
Basel III Is Here - What are the implications for your business? Infosys
This article focuses on the key requirements of the Basel III proposals. It highlights key issues uncovered during the financial crisis, delineates measures introduced to prevent the repeat of the issues, and outlines the impact on the financial industry and larger economy on the whole. The paper then takes a deep-dive into the impact of the new regulations on data and technology systems and the challenges firms face in re-engineering their data and IT systems. Finally, it offers a solution to these challenges.
The document discusses key aspects of the conceptual framework for financial accounting and reporting established by the Financial Accounting Standards Board (FASB). It describes the three levels of the conceptual framework, including the basic objectives, qualitative characteristics and basic elements, and recognition and measurement concepts. It also outlines the FASB's efforts to develop the conceptual framework through six Statements of Financial Accounting Concepts, which establish the objectives of financial reporting as providing useful information to investors and creditors.
This document discusses two methods for calculating Value-at-Risk (VaR): 1) Assuming a normal distribution of portfolio returns and using a GARCH model to estimate conditional volatility, and 2) A nonparametric bootstrap method. The normal distribution assumption is appropriate only during calm periods but will underestimate risk during turbulent times. The bootstrap method does not rely on distributional assumptions and better accounts for uncertainty in conditional variance dynamics to provide more accurate VaR estimates. An empirical exercise applies the two methods to the CAC40 index to demonstrate how the normal distribution method fails VaR tests during turbulence while the bootstrap method passes.
The document discusses upcoming changes in banking regulation, focusing on benchmarking of internal models used to calculate capital requirements. Key points include:
- Regulators aim to standardize calculations and reduce inconsistencies between banks through benchmarking portfolios and comparing risk-weighted assets.
- This will move regulation from individual bank oversight to an industry-wide, top-down approach where deviations from market averages could lead to sanctions.
- Banks will need to strengthen controls, optimize risk management, and may need to redesign some internal models to align with benchmarks and new standardized methodology.
Chappuis Halder & Cie is a consulting firm that specializes in financial services. They propose a "Kick-Boost-Launch Approach" to help banks develop digital strategies. This involves workshops to understand opportunities, benchmarking best practices, and defining a multi-year roadmap. Their presentation outlines the major changes in banking driven by new technologies and customers' shifting expectations towards more personalized, convenient digital experiences. It also identifies areas banks can improve and innovate, such as operational efficiency, new business models, and targeting underserved customer segments through digital channels.
Digitalization is transforming the banking industry and customer expectations. Private banks must move from product-centric to client-centric approaches using digital enablers to both improve operations and innovate new services. This includes addressing new markets through tailored user experiences, developing community features, and becoming a trusted place for financial and social support through protection, empowerment, guidance, and intimacy.
This document discusses regulations and standards that govern the banking system. It provides context on factors that drive regulations, including the 2007-2008 financial crisis which revealed shortcomings in risk management. Major standards discussed include Basel II, Basel 2.5, Basel III, IFRS 9, and IFRS 13. Each standard addresses specific objectives like strengthening capital requirements, managing liquidity risk, and increasing transparency. The document also outlines the principles and objectives of the various standards, with a focus on Basel II, Basel 2.5, and how they aim to improve risk measurement and management.
Energy markets have been subject to deep structuring changes in the last few years. Discover CH&Cie's commodities offer and our 5 key levers to be successful on the competition arena
The Volcker Rule, a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, was adopted on December 10, 2013. Check out how CH&Cie can help your organization implement it
In this article, we review the basics of Bitcoin, its main characteristics and opportunities as well as interesting innovations that have recently been developed in various parts of the world.
Key learnings of recent AQR & CCAR exercises suggest that some significant moves are required to fulfil market & regulators expectations. In this context, CH&Cie is pleased to share with you the latest developments in implementing stress testing as well as best practices
In the current demanding environment, Financial Institutions are facing a complex challenge: attract new clients while keeping a strict cost effective approach and coping with local and global regulations.
CH&Cie takes you through the stakes and key success factors to to increase attractiveness and customer satisfaction.
HR departments are deeply evolving from administrative-focused to business-focus organizations. Thanks to its in-depth knowledge on IT&Ops, CH&cie takes you through the context and stakes of this transformation
This document discusses the roles and responsibilities of various parties in the pricing and validation process at a bank. Finance has overall responsibility for financial reporting and delegates pricing and valuation control to other functions. Risk is responsible for approving models and setting market parameters. Front office is responsible for deal execution while middle office validates standard parameters and produces P&L statements. Operations ensures accurate deal representation in systems.
The Impact of Generative AI and 4th Industrial RevolutionPaolo Maresca
This infographic explores the transformative power of Generative AI, a key driver of the 4th Industrial Revolution. Discover how Generative AI is revolutionizing industries, accelerating innovation, and shaping the future of work.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...Donc Test
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
Discover the Future of Dogecoin with Our Comprehensive Guidance36 Crypto
Learn in-depth about Dogecoin's trajectory and stay informed with 36crypto's essential and up-to-date information about the crypto space.
Our presentation delves into Dogecoin's potential future, exploring whether it's destined to skyrocket to the moon or face a downward spiral. In addition, it highlights invaluable insights. Don't miss out on this opportunity to enhance your crypto understanding!
https://36crypto.com/the-future-of-dogecoin-how-high-can-this-cryptocurrency-reach/
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
办理美国UNCC毕业证书制作北卡大学夏洛特分校假文凭定制Q微168899991做UNCC留信网教留服认证海牙认证改UNCC成绩单GPA做UNCC假学位证假文凭高仿毕业证GRE代考如何申请北卡罗莱纳大学夏洛特分校University of North Carolina at Charlotte degree offer diploma Transcript
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办理美国SDSU毕业证书制作南达科他州立大学假文凭定制Q微168899991做SDSU留信网教留服认证海牙认证改SDSU成绩单GPA做SDSU假学位证假文凭高仿毕业证GRE代考如何申请南达科他州立大学South Dakota State University degree offer diploma Transcript
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
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Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
Does teamwork really matter? Looking beyond the job posting to understand lab...
CH&Cie - Regulatory Offer
1. How to turn Standards’ constraints into a business generator ?
“Anyone who has never made a mistake has never tried anything new” –Albert Einstein
Benoit Genest
bgenest@chappuishalder.com
Stephane Eyraud
seyraud@chappuishalder.com
Ziad Fares
zfares@chappuishalder.com
2. Context
Principles & objectives of the Standards
Impacts & issues
CH&CieOffer
Agenda
1
2
3
4
2
3. 3
Regulations and standards evolutions are driven by many factors
From a difficult economic context to political and social pressures
1
Context
Context
Financial institutions faced massive losses during the last crisis with dramatic impacts on the overall economy …
•Thesubprimecrisisthattookplacein2007,unleashedaseriesofproblemsthatthreatenedthefinancialbankingsystemandthewholeeconomyaswell
•Fromarealestatecrisis,toafinancialcrisis,toanoveralleconomycrisis,thisdifficultperiodrevealedshortcomingsinidentifying,hedgingandmanagingrisksinthebankingsystem
•Thecausesofthisturbulencewereofdifferentnatures
Aconfidencecrisis
Liquidityandfundingissues
Volatilityandunpredictabilityofmarketparameters
Highlevelofcorrelationbetweenfinancialinstitutionsandsystemicrisks
SignificantincreaseinOTCderivativetransactionvolumes
Raison d’être of Standards
A reaction to shortcomings revealed during the crisis
•Someregulationsevolved,otherswerecreatedinordertocovertheshortcomingsinriskmanagementrevealedduringthecrisis
•Forexample,BaselIIIcameasareactiontoabadcoverageandunderstandingofCounterpartyCreditRiskandliquiditymanagement
A Changing environment
•Today’seconomicenvironmentisonperpetualmotionfromalegislativeframeworkpointofview(geographically, betweentheEUandtheUS)andfromaconvergenceandhomogenizationbetweenregulationandstandards(regulatoryandaccountingstandards)
Political & Social pressure
•Oneoftheobviousraisond’êtreofregulationsisthepoliticalandsocialpressure,inordertoregulateaccuratelythebankingsystemandtoavoidabusesandexcesses
4. Since the last decade, the regulation and the monitoring of the banking system have been subject to sharper focus
•Publication: 2004
•Application date – standardized approach & IRB foundation:2007
•Application date –IRB advanced : 2008
•Objective : Capture and measure CreditRisk, MarketRisk & OperationalRisk
2008
Basel 2
2012
•Publication: 2009
•Amendments:2010
•Application date :2012
•Objective : Strengthen capital requirements for market risk and re-securitization, amend theCompensation Policy towards market participants etc..
Basel 2.5
2013
•Publication: 2010
•Final text:not issued yet
•Application date :2013
•Objective : Enhance Capital Quality, deal with Systemic Risk, increase capital requirements for Counterparty Credit Risk, manage and cover Liquidity Risk
Basel 3
•Publication: 2011
•Application date :2013
•Objective : Give a precise definition of the fair value, define levels in the fair value hierarchy, consider CVA / DVA in the fair value measurement
IFRS 13
•Publication: phase 1 –2009, phase 2 -2011, phase 3 -2012
•Application date :2015
•Objective : Define asset classes (amortized cost vsfair value), introduce a new impairment model (Expected Loss) ensure convergencewith prudential standards
IFRS 9
2015
Prudential standards
Accounting standards
4
1
Context
6. Regulations and standards are more and more a worldwide concernGlobal benchmark
Basel II
Basel 2.5
Basel 3
IFRS 9
IFRS 13
NorthAmerica
Basel II
Basel 2.5
Basel 3
IFRS 9
IFRS 13
South America
Basel II
Basel 2.5
Basel 3
IFRS 9
IFRS 13
Europe
Basel II
Basel 2.5
Basel 3
IFRS 9
IFRS 13
Asia
Basel II
Basel 2.5
Basel 3
IFRS 9
IFRS 13
Africa
In progress
On hold
Completed
6
1
Context
7. Context
Principles & objectives of the Standards
Impacts & issues
CH&CieOffer
Agenda
1
2
3
4
7
8. Prudential standards cover an extensive scope… … encompassing new solutions to cover shortcomings revealed during the 2007 crisis
2
Principles & objectives of the Standards
Pillar I –Solvency Ratios
Capital
RWA
Core Tier 1
Tier 1
Tier 2
Tier 3
Systemic Risk
Leverage ratio
Pillar II –Supervisory Process
Credit
Pillar III –Market Discipline
Standard
IRB -Foundation
IRB -Advanced
Counterparty
Exposure calculation
Default risk
CVA, WWR
Margin period of risk
Market
Standard
Advanced : Stress Var, IRC
Operational
Standard, BIA, AMA
FI correlation
Buffer
countercyclical
conservation
CCP
Capital requirements
Economic capital
ICAAP
Testing
Stress testing
Back testing
Risk
Concentration / liquidity
Reputational / strategic
Liquidity ratios
LCR
NSFR
Compensation policy for maketparticipants
Financial communication
Credit risk
Market risk
Operational risk
Complex instruments
Off-balance sheet expos.
Breakdown by
industry
Geographic area
Approach (IRBA, STD)
Basel 2
Update Basel 2.5
Update Basel 3
Removed in BIII
New in Basel 2.5
New in Basel 3
8
9. Each prudential standard meets a specific objectiveFocus on Basel 2 …
2
Principles & objectives of the Standards
Basel 2
Basel 2.5
Basel 3
1
2
3
Objective
Description
LimitsofBaselI
•ThemaininputforCookesolvencyratioistotalamountofgrantedloans
•Assetweightings-enablingtoconsidertheweightedrisk-didnotreflecttheborrower'srealcreditworthiness
•Inaddition,thematuritiesofcontractswerenotconsideredeither
•Finallyriskmitigation/hedgingtechniques(CDS, securitizations,collateral&nettingagreements)andoperationalriskwerealsonottreatedwithinBaselI
ObjectivesofBaselII
•BaselIIstandardsproposeanapproachallowingtoconsiderthecreditworthinessoftheborrowerviaaninternalratingsystem
•Inaddition,theyenhancemarketriskmeasurement(e.g.throughtheVaR)anddefinetermsfortreatingoperationalrisk
•WithinBaselII,McDonoughratio–replacingCookeratio-considerscredit,market&operationalrisksandaimstostrengthencapitalrequirements
•Moreover,withinPillarII,financialinstitutionsshallalsoassessandensuretheadequacyofregulatorycapitalwitheconomiccapital-whichreflectstherealactivityofaspecificfinancialinstitution
•Finally,financialreporting&communicationaremandatorywithinPillarIII,inordertoenhancetransparencyamongthebankingsystem
CreditRisk
•BaselIIproposesanAdvancedApproachtocapturedefaultriskbasedonaninternalratingsystem
•Aprobabilityofdefault(PD)iscalculatedforeachcounterpartythroughvarioustechniques(statisticalapproach,expertjudgmentetc...)overaone-year- horizon
•ExposureAtDefault(EAD)iscalculatedanddefinedastheasset'sbookvalue
•Finally,DefaultRecoveryRates(RR)aredeterminedviadifferenttechniques(statisticalapproach, historicalapproach…)
•Foreachasset,ariskweightisdeterminedfromthecombinationofPD,LGDandEAD
•Maturitiesimpactandratingmigrationriskistakenintoaccountviaanadjustmentcoefficient
CounterpartyCreditRisk
•BaselIIdefinestechniquesfordeterminingexposuresonderivativesandsecuritiesfinancingtransactions(repo,securitieslending/borrowing)
•Italsodefinestermsfortakingintoaccountriskmitigationtechniques(collateral,nettingagreements,etc…)
Operationalrisk
•Operationalriskisalsoconsideredandevaluationtechniquesarepresented(AMA,BIA,STD..)
MarketRisk
•Itisaboutcapturingriskscomingfrommarketfactorsvolatility(FXrates,interestrates,creditspreads)
9
10. Each prudential standard meets a specific objectiveFocus on Basel 2.5 (CRD II / CRD III) …
2
Principles & objectives of the Standards
Basel
Basel 2.5
Basel 3
1
2
3
Objective
Description
MotivesofBasel2.5
•ThisreformisconsideredasanenhancementofBasel2andbeganin2005
•Followingthe2007-08financialcrisis,itsscopehasbeenwidened
•Infact,duringthe2007crisis,inacontextofextremevolatilityofmarketvariables,VaRmodelsintroducedinBaselIIfailedtocapturesuchextremesituations
•Asareminderthesemodelsestimatepotentiallossesofaportfolioviahistoricalscenariosformarketvariables
ObjectivesofBasel2.5
•Followingthefinancialcrisis,wheresituationsofextremestressandvolatilitywereobserved,Basel2.5hasbeenissuedtocaptureaccuratelysuchextremeevents(whichwerenottakenintoaccountwithinhistoricalscenarios)
•ThescopeofBasel2.5encompassesexclusivelycredit,marketandconcentrationrisks
•Itspurposeistomeetthefollowingobjectives
>CaptureLossesrelatedtoextremeevents
>CaptureLossesduetodefaultandratingmigration
>Treatsecuritizations&re-securitizations
>Takeintoaccountcorrelationsbetweenassetsofthetradingbook
CreditRisk(StandardizedApproach)
•Securitizations&Re-securitizationsaretreatedasheldintothebankingbook.Theyarethereforeprocessedintheframeworkofcreditriskpolicy. Thisaimstoavoidthearbitragebetweenthetradingandthebankingbook
•Whiledeterminingtheexposureonsecuritization, bothbalancesheetandoff-balancesheetcommitmentsareconsidered
•Newweightingfactorsmustapplyonsecuritizationinstruments
MarketRisk(Internalmodelapproach)
•StressedVaR-ItisanewVaRmodelbasedonstressedscenariosformarketvariablesintheintenttocapturesituationsofextremevolatility.ThisVaRisadditionaltotheclassicalVaR
•IncrementalRiskCharge(IRC)-allowstocapturedefaultandratingmigrationrisksviaaVaR(99%;1year)model.ItisadditionaltothemarketriskcapitalchargeintroducedinBasel2.Itisaboutintroducinga“creditrisk”basedapproachforinstrumentsheldinthetradingbook
•ComprehensiveRiskMeasure(CRM)-allowstomeasureboththecorrelationbetweeninstrumentsofaportfolioandthevolatilityaswell
Pillar2/Pillar3
•Basel2.5definesaCompensationPolicyformarketparticipants(deferredbonusdistribution,…)
•Italsohandlesthemanagementofconcentrationriskandenhancesfinancialcommunication
10
11. Each prudential standard meets a specific objectiveFocus on Basel 3(CRD IV) …
2
Principles & objectives of the Standards
Basel 2
Basel 2.5
Basel 3
1
2
3
Objective
Description
MotivesofBasel3
•Thisreformisbasicallyaresponsetowhathasbeenobservedduringthe2007crisiswherecapitalreservesfailedtoabsorbrecordedlosses
•Furthermorethe2007crisisuncoveredmanyloopholes.Forinstance,itwasnoticedthatcertainriskswerenotcoveredorconsideredinthepreviousstandardsorbyinternalriskmanagementmodels
ObjectivesofBasel3
•Basel3mainpurposeistocovershortcomingsidentifiedduringthe2007crisisintermsofriskmanagement
•Basel3proposesamendmentsforexistingstandardsbutalsodefinesasetofnewrulesandconsequentlywidensthescopeofissuescoveredbyprudentialstandards
•Moreprecisely,itenablestomeetthefollowingobjectives
>Enhancethequalityandthequantityofcapitalreserves
>Regulatetheleverageeffectbyintroducingaleverageratiowhosepurposeistoincreasecapitalreservesorreduceassetsvolumes
>Capturesystemicriskandtheriskofcontagionfromafinancialcrisistoanoveralleconomycrisis
>EnhanceCounterpartyCreditRiskmanagementandframeapolicyforliquidityrisk
Enhancethecapitalstructure
•Tier3isremovedandTier1issplitintoTier1andCoreTier1.CET1increasesto4,5%from2% previously
•SomesecuritiespreviouslyeligibleforTier1,willbedowngradedtoTier2
•TheSolvencyRatiomustbegreaterthan10,5%(vs. 8%previously
LeverageRatio
•ItisdefinedastheratiobetweenTier1Capitalandnon-weightedexposures(on-&off-balancesheet)
•Thisratiomustbegreaterorequalto3%.ItwhetherincreasesTier1capitalreservesorreducesthesizeofthebalancesheet
SystemicRisk
•Correlationcoefficientisincreasedby25%forfinancialinstitutionstoreflecttheirinterdependencyandtheriskofcontagion
•ConstitutionofaConservationBufferthatrepresents2,5%oftheSolvencyratio.ItisaCET1extracushion
•ConstitutionofaCountercyclicalbufferduringperiodofgrowth,usedtoabsorblossesduringadownturncycle.ItisaCET1extracushion
•CalculationofexposureswithCCP
CounterpartyCreditRisk/liquidityRisk
•CVAcalculationtocaptureMtMLossesduetocreditspreadsvolatilityandtoconsiderWWRthroughthecalculationofstressedEPE
•Implementationof2LiquidityRatios(ST<)
11
12. Accounting rules also evolved … … in order to converge and be consistent with regulatory rules
2
Principles & objectives of the Standards
IFRS 9
IFRS 13
Phase 1 – Classification & Measurement
Phase 2 –Impairment rules
Phase 3 –Hedging account
Evaluation method
Amortized Cost
Incurred Loss model
Expected Loss model
Risk exposure
Bad Book / good Book
EL calculation methodology
Maturity / Horizon
Counter
Cyclical effects
Accounting Specific / Collective
1–Fair Value Instruments Classification
2–CVA / DVA impairment
Fair value hierarchy
Level 1 –Quoted Prices
Level 2 –Prices computed with observable parameters
Level 3 –Prices computed with non observable parameters
Fair value Definition
Calculation methodology
Expected Loss –standard / advanced approach
Shifting curve
CDS Spreads
Risk exposure / perimeter
Valuation techniques
Methodology
Reporting
Suppresion
No regulatory guidelines
Regulatory guidelines
12
Fair Value through P&L
Historical cost
Other methods
Classification
Held to maturity
Intent to be sold
13. IFRS 9 changes the way of measuring impairments…as a consequence of the last financial crises
2
Principles & objectives of the Standards
IFRS 9
IFRS 13
1
2
Regulation summary
Description
Classification&Measurement
•IFRS9paragraph3:5-TheEDproposestwoprimarymeasurementcategoriesforfinancialinstruments. Afinancialassetorfinancialliabilitywouldbemeasuredatamortisedcostiftwoconditionsaremet:theinstrumenthasbasicloanfeaturesandtheinstrumentismanagedonacontractualyieldbasis
•Afinancialassetorfinancialliabilitythatdoesnotmeetbothconditionswouldbemeasuredatfairvalue
Impairmentrules
•IFRS9IN5(b)-theproposedimpairmentapproachgenerallywouldresultinearlierrecognitionofcreditlossesthantheincurredlossimpairmentmodelinIAS39(ieavoidthesystematicbiastowardslaterecognitionofcreditlosses).Inotherwords,therequirementforanobservablelosseventtohaveoccurredbeforeconsideringtheeffectofcreditlosseswouldberemoved
•IFRS9IN10-TheIASBhascontinuedtostresstheimportanceofreflectingtherelationshipbetweenthepricingoffinancialassetsandexpectedcreditlosses
•IFRS9IN11-TheFASBconcluded,jointlywiththeIASB,thatanentityshould,alongwithconsideringhistoricaldataandcurrenteconomicconditions, considerreasonableandsupportableforecastsoffutureeventsandeconomicconditionsfordevelopingtheentity’sestimateofexpectedcreditlosses
Motivations
•Beforethelastfinancialcrisis,impairmentsonassetsvaluedusingtheamortizedcostmethod, werecalculatedusingthe“incurredloss”method
•Thismeansthatimpairmentsexistonlyifalosseventoccurs
•Duringthefinancialcrisis,ahugenumberoflosseventsoccurred,andtheimpairmentstockincreaseddrastically,whichmeantthatreservesalreadyinplacefailedtoabsorbcurrentlosses
Objectives
•Theincurredlossmodelsufferedfromshortcomingswhichledtoproposeanothermodel
•Infact,itrecognizesexpectedlosseslatelywaitingforacrediteventtooccur.Italsooverestimatedinterestincomebecauseinterestratesdidn’tincludeariskpremiumrelatedtothecreditworthinessofcounterparties
•Consequently,impairmentunderIFRS9aretobecomputedusinganExpectedLossmodel,whichmeansthatreservesaretobebuiltupbeforeacrediteventoccurs
•Themainobjectivesofthismodelare
Buildingupreservestoabsorblossesifadownturnintheeconomyoccurs(countercyclicaleffect)
ConvergewithBaselIIdefinitionofexpectedloss
13
14. IFRS 13 provides more precision on fair value definition…but banks concerns are more focused on CVA / DVA computation
2
Principles & objectives of the Standards
IFRS 9
IFRS 13
1
2
Regulation summary
Description
Fairvaluehierarchy
•IFRS13:72-Thehierarchygivesthehighestprioritytoquotedpricesinactivemarketsandthelowestprioritytounobservableinputs
Fairvaluedefinition
•IFRS13:AppendixA-Thepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate(i.eexitprice)
Valuationtechniques
•IFRS13:62
marketapproach–usespricesandinformationgeneratedbymarkettransactions
costapproach–currentreplacementcost
incomeapproach–discountedcashflows
CVA/DVAimpairment
•IAS39.AG67-Fairvaluereflectsthecreditqualityoftheinstrument
•IAS39.AG28(b)-Anappropriatetechniqueforestimatingthefairvalueofaparticularfinancialinstrumentwouldincorporatecreditrisk
•IFRS13.42-Thefairvalueofaliabilityreflectsnon- performancerisk.Non-performanceriskincludes, butmaynotbelimitedtonanentity’sowncreditrisk
Motivations
•OneofthemajormotivationsofIFRS13istheconvergenceofaccountingstandards,byestablishingasetofaccountingrulesthatwillbeusedgenerallyandbyreducingthegapbetweenUSGAAPandIFRS
•IFRS13wasdesignedinordertogiveonecleardefinitionoffairvaluemeasurementaswellasenhancingclaritybystandardizingelementsofreportingandvaluationtechniques
•Moreover,duringthecrisisof2007,MtMlosseswereofphenomenalamountswhichledtodefineclearlyfairvalueandhowitmustbemeasured
Objectives
•IFRS13establishesasingleframeworkforallfairvaluemeasurementbutdoesnotchangewhenfairvaluemustapply
•Butratherdescribeshowtomeasurefairvalue
•Moreover,IFRS13clearlystipulatesthatfairvaluemustreflectlossesduetocounterpartycreditrisk(CVA)aswellasgainsduetoanentity’sowncreditrisk(DVA)
•Nonetheless,IFRS13doesn’tdefinehowCVAandDVAaretobecomputingwhichmeansthatcalculationmethodologyareoneofthemajorissuesforbanksunderIFRS13
14
15. Context
Principles & objectives of the Standards
Impacts & issues
CH&CieOffer
Agenda
1
2
3
4
15
16. Regulatory requirements and constraints have multi-dimensionnalimpacts… from financial impacts, to more operational and IT concerns, then business issues (1/3)
3
Impacts & issues
Bâle 2
Subjects
Financial
Orga
Methodology
Business
Hot Topic?
Credit Risk -RWA computation
•Standardapproach
•IRBFoundation
•Advanced(PD,LGD, EAD,CCFmodeling)
CCR –exposure computation
•CurrentExposureMethod(add-on)
•Internal-basedmodelapproach(EPE)
Market Risk –RWA computation
•Standardapproach
•Internalapproach(VaRmodels,MonteCarlosimulation…)
Pillar II & Pillar III
•ICAAP
•Backtesting/stress
16
17. Regulatory requirements and constraints have multi-dimensionnalimpacts… from financial impacts, to more operational and IT concerns, then business issues (2/3)
3
Impacts & issues
Bâle 2.5
Subjects
Hot Topic?
Market Risk –RWA computation
•StressVaR
•IRC/CRM
Basel 3
Capital structure
•Tier1/Tier2
CCR -CVA
•Standardapproach
•Advancedapproach
Systematic risk
•CorrelationcoefficientforFI
•Capitalbuffers
•CCP
LeverageRatio
Liquidity ratios
•LCR
•NSFR
17
Financial
Orga
Methodology
Business
18. Regulatory requirements and constraints have multi-dimensionnalimpacts… from financial impacts, to more operational and IT concerns, then business issues (3/3)
3
Impacts & issues
IFRS 9
Subjects
Hot Topic?
Phase 1 -Classification & Measurement
•Classification
•Measurement
Phase 2 –Impairment rules
•ExpectedLossimpairment
IFRS 13
Fair Value Instruments Classification
•Hierarchy
•Valuationtechniques
CVA / DVA impairment
•Methodologyandcalculation
18
Financial
Orga
Methodology
Business
19. Banks will face great challenges in putting in place regulations… with an impact on balance sheet’s structure and P&L
Direct impact on capital structure
2%
4.50%
2%
1.50%
3%
2%
1%
2.50%
2.50%
Basel 2/2.5
Basel 3
Countercyclical buffer
Conservation buffer
Tier 3
Tier 2
Additional Tier 1(hybrid)
CET 1
+ 63%
Impact on balance sheet -Assets
Impact on balance sheet -liabilities
Other
Other
Fees
Fees
Loans
Loans
Rever. Repos
Rever. Repos
Securitization
Sovereignsec.
Securities
Securities
Cash
Cash
Derivatives
Derivatives
Today
With Basel III
Unsec. funding
Unsec.funding
Deposit
Deposit
Secu. Funding short term
Secu. Funding short term
Interbank borrowing
Interbank bor.
Derivatives
Derivatives.
Capital
Capital
Today
With Basel III
NSFR & leverage ratio
LCR buffer
CVA impact
LCR buffer
NSFR & LCR
Trust crisis, collat.
Correlation coeffic.
Capital struct. & buffers
Trust crisis, collat.
Impact on P&L –Cost of risk
CVA / DVA (IFRS 13)
No CCR impairment
Expected Loss (IFRS 9)
Incurred Loss
•CCRimpairment–SubstantialimpactontheP&Lbecauseofderivativesandrepotransactionvolumes
•ExpectedLossimpairment–Comparedtotheincurredlossmodel,theimpactontheP&Lisgreaterbecauseimpairmentarebuiltupbeforeacrediteventoccurs
19
3
Financial impacts
20. Banks will face great challenges in putting in place regulations… with an impact on processes and organization
Regulatory CVA –Basel III
Leverage Ratio –Basel III
Liquidity Ratios –Basel III
Central Counterparty Clearing House –Basel III
•EPE/StressedEPE–OneofthemainchallengesforCVAcomputationunderBaselIII(Advancedapproach)istobuiltuppricingmodelsandscenariogenerators
•HedgingCVA&interactionswithCVAdesks–ItisimportantthatprocessesforcomputingCVAcapitalrequirements,CVAimpairmentandCVAdesksmustbeoptimized
•RequiresahighcomputingcapacitywithoptimizedmodelsforMTsimulations
•RequiresagoodunderstandingofprocessesaswellasallCVAcomponents
•IdentificationoftransactionswithCCP–WithinBaselII,transactionswithCCPhadanEAD=0,whichmeantthatthesetransactionswerenotidentifiedseparately
•Margincallsandcollateralmanagement–WithEMIRregulation, thevolumeoftransactionwithCCPwillincreasessignificantly
•DefaultFund–BaselIIIdefinescapitalrequirementsforbalanceandoff- balancesheetdefaultfunds
•RequireshighgranularitywithinITsystems&anewmethodologyforEADcalculus
•RequiresoptimizedprocesseswithBOcollateralmanag. unit
•RequiresoptimizedprocesseswithRisk&Financialfunctions
•Reposandderivativestreatment– Oneoftheinputstotheratioisrepotransactionswithanettingbetweencashlegandsecuritiesleg
•Reconciliationbetweenriskandfinancefunction–Theinputstotheleverageratioareof2natures:Risk& finance.Riskinputsarereposandderivativestreatment.Financeinputsarecapitalinformation
•Requiresthecapacityofidentifyingtoeachbalancesheetexposure,itsoff- balancesheetleg
•RequiresoptimizedprocesseswithRisk&Financialfunctions
•Liquiditybuffer–isconstitutedofcash, centralbankreserves,liquidsecuritiesetc…
•Identificationofencumberedassets– Assetsusedascollateral(forsecuritizationforinstance)mustbeidentifiedandtreateddifferentlyintermsofliquiditywithintheNSFR
•RequireshighgranularitywithinALMcalculator& optimizedprocesseswiththetreasurer
•RequiresoptimizedprocesseswithBOcollateralmanag. Unit
20
3
Organizational impacts
21. Banks will face great challenges in putting in place regulations… with an impact on models and methods
CVA Impairment –IFRS 13
Expected Loss model -IFRS 9
•CVA/DVAmethodology–OneofthemainchallengesforCVAimpairmentisputtinginplaceamethodology(knowingthatitisnotspecifiedinIFRSrules)
•Benchmarkofmethodologiesthatcanbeused
•ExpectedLossmethodology–TheExpectedLosswithinIFRS9hasthesamedefinitionastheexpectedlosswithinBaselII.ThechallengeforbanksistocalibratetheELcorrectlytoavoidoverlapwiththeULwithinBaselII.Thispointwillbedetailedinpartn°5
ExpectedLossmodel
1
ShiftingCurves
2
CDS spreads
3
•CVA=PDxLDGxEAD
•PD-Inpriority,considerobservablecreditspreads.Ifnotavailable,useregulatory1-yearPD,anddeterminePDtillmaturityusingincrementalPDformula
•EAD
Inastandardizedmethod,usetheCurrentExposureMethod(MtM+Add-on)usingregulatoryadd-onfactors
Inanadvancedapproach,useEPEmodels
•LGD-Inpriority,considerobservableLGD(ratingagencies, etc…).Ifnotavailable,useregulatoryLGD
•CVA=PresentValue1(RiskFree)–PresentValue2(+riskpremium)
•Cashflowsarediscountedusingzero-couponcurves,thenzero-coupon+creditspreads
•CVA=EADx(creditspreadxduration)xLGD
•CVAiscomputedasafunctionofcreditspread
21
3
Methodology impacts
22. Understanding the dynamic of interactions between regulations… is about identifying the synergies and optimizing potential overlap (1/2)
Synergies Basel II – IFRS 9
What is the issue ?
How to optimize?
Basel II 99,9%
EL
(Basel II)
UL
(Basel II)
Loss
Probability
Bad EL 1y (IFRS) calibration
•ELwithinBaselIIisdefinedasPDxLGDxEADona1yearhorizon
•ELwithinIFRS9isalsodefinedasPDxLGDxEAD.Though,iftheparametersusedaresignificantlydifferentfromthoseusedinbasel2,thiscanleadto:
Abadcoverageofexpectedlosses(case1)
Overlapbetweenimpairmentandcapital(case2)
1
2
•ThebestwaytocalibratecorrectlyandefficientlytheELwithinIFRSistouseBaselIIparametersandcapitalizeonwhatisprovidedforregulatoryintent
Basel II -EL
Basel II –PD (TTC)
Basel II -LGD
Basel II -EAD
IFRS –PD (PIT)
IFRS -LGD
IFRS -EAD
1y maturity
Economic LGD
Regulatory EAD
Basel II -EL
1y for bucket 1
Until maturity for bucket 2,3
PIT
Not economic,PIT
Regulatory EAD
Same risk bases
Synergies Basel II – Basel III
LossesduetoratingmigrationsarealreadycapturedwithinBaselII
Maturity adjustment coefficient, function of PD
•ThematurityadjustmentcoefficientintroducedwithinBaselIIhasadualpurpose
Thelongerthematurityis,thehighertheriskis
ItisafunctionofPD,andcapturesratingmigrations
•ThepurposeofCVAunderBaselIIIistocapturelossesduetoratingvolatilityandmigration
Analysisoftheb(PD)term
Itisanadditionalcapitalrequirementforratingmigrations.RatingMigrationsaremorelikelytohappenforlowerPDandhighermaturities
•ForBaselIII-CVAundertheIRBapproach,thematurityadjustmentcoefficientmaybesetto1(whichmeanscapturingdefault-onlyrisk)ifthebankcandemonstratethatratingmigrationandrisksarecorrectlyandefficientlycapturedinthespecificVaRmodel
PD
22
3
Methodology impacts
23. MtM
EL
(Basel III)
Understanding the dynamic of interactions between regulations… is about identifying the synergies and optimizing potential overlap (2/2)
Synergies Basel III – IFRS 13
What is the issue ?
How to optimize?
EL
(IFRS 13)
UL
(Basel II)
Loss due to counterparty default
Probability
CVAunderBaselIIIvsCVAunderIFRS13:2differentdefinitionsfordifferentpurposes
•CVAunderBaselIIIcoversMtMlossesduetoratingmigrationandvolatility,withoutcounterparty’sdefault.Itisaone-yearhorizonVaRwith99%confidencelevel.ItincorporatesULandELaswell
•CVAunderIFRS13coversexpectedlossesonderivativesandreposstyletransactionsduetocounterpartydefault
Yet,thereismuchincommonbetweenthem
•Eventhoughtheyareusedfordifferentpurposes,itisimportanttocalibratethemcorrectlytoavoidoverlapsknowingthattheysharethesameinputsandperimeter
UL
(Basel III)
MtMLoss due to rating volatility
Therearetwomainaxesforoptimization:Methodologyandperimeterofapplication
•Methodology&inputs–MeasuringCVAunderIFRSasanExpectedLossmodelwillallowtocapitalizeonBaselIIparameters(PD,LGD,EAD)andusethemasinputstothemodel.TheseinputsarealsousedforCVAcomputationunderBaselIII
•Perimeterofapplication–CVAunderBaselIIIandIFRS13arecomputedonallnon-defaultedderivativesandrepostyletransactions.Onetheperimeterisidentified,regulatoryEADcanbeusedforIFRS13purposes,afterreconciliatingMtMusedforregulatorypurposesandMtMusedforaccountingpurposes
Methodology& inputs
1
MethodologyunderBasel3
•PD–PriorizingexternalPD,theninternalPD,thenbydefaultvalue
•LGD-PriorizingexternalLGD,theninternalLGD,thenbydefaultvalue
•EAD–Determinedusingadd-onmethod(MtM+add-on) orusingEPEmodels
Same methodology, rules and inputs can be used for IFRS 13
Perimeter
2
Riskbases
Non defaultedderivatives
Basel III
EAD
Add- on
Reconciliation
IFRS 13
EAD
AccountingMtM
23
3
Methodology impacts
24. Context
Principles & objectives of the Standards
Impacts & issues
CH&CieOffer
Agenda
1
2
3
4
24
25. CH&Cie Regulatory offer and scope of interventionDelivering solutions at all levels
4
CH&Cie Offer
Interpretation of Standards
•CH&Ciehasbuiltupanexpertisecenterconstitutedofexpertsinregulatoryandaccountingstandards
•Wehelpourcustomersininterpretingcorrectlythenormsaswebeneficiatefromalargebenchmarkaswellasexperienceandexpertise
•Ourinterpretationisconductedinatwo-wayapproach
Interpretationandimpactsfromourclient’senvironmentandbusinessperspective
Amoremacro-levelanalysis
Advice at an expertise-level
Implementation
1
2
3
•MorethanjustinterpretingtheStandards,wedeliverandprovideexpertise-leveladviceby
Identifyinghowandwherethestandardswillhaveasignificantimpactforourclients
Stayingup-to-datewiththebestpracticesonaworld-widelevel
Capitalizingonourknow-howandknowledgeatbothRegulationsandriskmanagementlevel
•Wealsodeliversolutionsintermsofimplementingthestandardsby
Managingandsteeringprojectsinordertoputinplacethestandardswithhotdeadlines
Providingassistanceonamoretechnicalpointofview(simulation, testing,…)
Offeringsimpleguidanceandorientationonadailybasis
Follow-up on evolving standards
•Inacomplexandchangingenvironment, wherestandardsandregulationsaredrivenbypoliticalandsocialpressure,standardsareevolvingcontinuously
•Ourexpertisecenterisup-to-datetothelatestandupcomingstandards’evolutions
Optimization
Assistance and help for third parties
4
5
6
•Weprovidesolutionstohelpourcustomersoptimizetheimpactsofthestandardsby
Helpingtobettercalibratemodelsandoptimizetheirefficiency(example–optimizingratingscales)
Identifyingsynergiesbetweenthestandardswhichallowtocapitalizeandenhancewhatisalreadyinuse
Simulatingimpacts&realizingsensitivitiestests.Forexample, StandardizedCVAformulaunderBIIIishighlysensitivetomaturities
•Wealsoprovideassistanceandhelponhottopicsfor
Centralbanksandlocalregulators
Auditors
Internalcontrolfunctions
25
26. MONTREAL
12F –1819 BdRene Levesque O.
Montreal, Quebec, H3H2P5
PARIS
20 Rue de la Michaudière
75002, Paris, France
NIORT
19 avenue Bujault
79000 Niort, France
NEW YORK
1441, BroadwaySuite 3015, New YorkNY 10018, USA
SINGAPORE
Level 25, North Tower,
One Raffles Quay, Singapore 048583
HONG KONG
9/F,
KinwickCentre 32 Hollywood Road,
Central, Hong Kong
LONDON
50, Great Portland Street
London EC3V 9EA, UK
GENEVA
Rue de Lausanne 80CH 1202 Genève, Suisse
26