Basel III & New Bank Capital Rules

Course overview In 2008, following the global financial crisis, the Basel Committee announced a comprehensive review of the banking regulatory framework. As a result, the industry has been flooded with reviews, proposals, consultative papers and impact studies. The business strategies of many banks will be affected by this regulation, resulting in less, more expensive, credit being available to bank customers, as well as significantly lower returns to bank shareholders. The industry is fighting back, with its own forecasts of the impact on the wider economy, and has won significant concessions in certain countries. The complex and constantly changing landscape can be overwhelming, so this 3-day course will help you to manage the likely changes to, and their impact on, your institution. Summary of course content The recent amendments to Basel applied to the definition of capital Regulation for market, credit, counterparty and liquidity risk Stress testing for various risk measures including how to formulate and articulate stress tests The likely effects of Basel III on the international banking industry, including demonstrations of its practical application Methodology This course will be a mixture of traditional lecturing, combined with case-studies and computer demonstrations. Who should attend this training course? Board members with risk responsibilities CROs and Heads of Risk Management Members of the Risk Management team Compliance, legal and IT support staff Equity and Credit Analysts Portfolio Managers Rating Agency Analysts FTS Eligible This programme is approved for listing on the Financial Training Scheme (FTS) Programme Directory and is eligible for FTS claims subject to all eligibility criteria being met. Please note that in no way does this represent an endorsement of the quality of the training provider and programme. Participants are advised to assess the suitability of the programme and its relevance to participants’ business activities or job roles. The FTS is available to eligible entities, at a 50% funding level of programme fees subject to all eligibility criteria being met. FTS claims may only be made for programmes listed on the FTS Programme Directory with the specified validity period. Please refer to www.ibf.org.sg for more information.
Day 1 Overview of events before and during the banking crisis Securitisation and the mortgage markets CDO markets, super senior tranches, the chase for yield, and the role of the rating agencies Gain-on-sale accounting and mark-to-market valuation Reliance on whole-sale funding and the creation of funding liquidity risk Use of structured investment vehicles and implicit support Impact on the interbank markets Limitations in stress testing Procyclicality Deficiencies in senior and risk management oversight This section will be reinforced with case studies discussing what happened in specific organisations such as Sachsen LB as well as the US investment banking sector. The regulatory responses Basel Dodd-Frank Act of US CRD IV of EU Independent Commission on Banking of UK Changes to capital itself What are some of the major problems with the current definition? Was capital truly loss absorbent? An outline of the proposed changes Concept of "going" and "gone" concerns Removal of hybrid securities Introduction of common equity Tier l and additional Tier l Regulatory adjustments Elimination of Tier lll and harmonisation of Tier ll Treatment of minority interests and other investments Harmonisation with IFRS Final percentages and the transition timetable Conservation capital buffer Why is Basel III procyclical - and what are the dangers? How it will work? Counter-cyclical capital buffers The broad intention - and the current proposals? Early warning signs of a boom-bust cycle Estimation of credit to GDP and other measures for each jurisdiction Estimation of capital buffers Home-host responses SIFIs and SIBS Changes to the regulation of market and credit risk Why has traded market risk been highlighted as requiring attention? Reinforcement to the approval process for internal models Introduction of stressed VaR How is this to be calculated? What is the estimated impact? Introduction of the incremental risk charge to replace issuer specific risk What are the broad requirements? Netting and other mitigation Specifying and implementing the liquidity horizon An overview of credit portfolio modelling, including both default and migration, to estimate the IRC Criticisms of the IRC, and likely modifications Estimation of a capital charge for counterparty credit risk (CCR) What is the current state? Background to the existing formula Introduction of the Credit Valuation Adjustment (CVA) and Debt Valuation Adjustment (DVA) How to model expected positive exposure Proposed bond equivalent approach The comprehensive risk approach Introduction of the 3-indicator methodology by the US Practical applications: Computer demonstrations to reinforce how the calculations may be performed. Centralised clearing for OTC derivatives How is the credit default swap market operating? Lessons to be learnt Incentives and disincentives to centrally clear What are the current Basel proposals? Day 2 Changes to the securitisation framework What went wrong, and what are the broad intentions? Dodd-Frank Act of July 2010 Recalibration of the supervisory formula Specific risk charges and SF charges The IOSCO Code of Conduct Multi-dimensional risk measures Is capital the only mitigant? Introduction of a leverage constraint Background: The US experience Why a leverage constraint is required: The Swiss view What is proposed - how is it likely to work? The overall timetable for parallel running and future calibration Should this move into Pillar 1? Introduction of a liquidity framework Funding liquidity: What happened during the crisis? Estimation of the liquidity coverage ratio What are eligible liquid assets? Estimation of run-offs Estimation of the net stable funding ratio Proposed calibration The supervisory stress test Regulatory metrics to estimate liquidity Day 3 Other changes to Pillars 2 and 3 Increased focus with Pillar 2 Changing emphasis for the ICAAP How the SReP may be adjusted Revised disclosure requirements under Pillar 3 Changes to margining Possible changes to accounting provisioning Concerns: Speed of national implementation US Stress testing Why stress test? What are the recent lessons? How was stress testing viewed prior to 2007? What happens in times of stress? What constitutes a good stress test? What are the management messages from stress tests? Senior management responses to stress tests Regulatory stress tests: Results from European tests Corporate governance Lessons from the crisis Getting the basics right Continual risk monitoring Enhanced oversight - the role of the Board Risk Committee Overall impact on the banking business model Likely changes to the banking product mix Likely changes to pricing Summary of course