Basel III, CRD IV and the New Regulatory Framework

Course Description Towards the end of 2008, following the Western banking crisis, the Basel Committee announced a full-scale review of the banking capital framework. As a result, during 2009 and 2010, the industry has been flooded with proposals, consultative papers, impact studies, and firm decisions. This process was due to be completed by the end of 2010, although it is still continuing through into 2012 and beyond. Many banking activities will be affected, and the broad consequences will severely impact banking strategies. This 3-day course is designed to discuss the likely changes, and their impact. Teaching Methodology This will be a mixture of traditional teaching, combined with case-studies and computer demonstrations. Who Should Attend This course has been specifically designed for the benefit of: CROs Heads of Risk Management Heads of Compliance Risk Managers Risk Controllers Auditors It is assumed that all delegates will have some knowledge of Basel II Why not recommend this course to a colleague?
Day 1 Registration commences at 8:30 on day one Programme runs from 9:00 - 5:00 daily Brief 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 Point of 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 Case studies: This section will be reinforced with some case-studies discussing what happened in specific organizations such as Sachsen LB as well as the US investment banking sector generally 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 1 and Additional Tier 1 Regulatory adjustments Elimination of Tier 3 and harmonisation of Tier 2 Treatment of minority interests and other investments Harmonisation with IFRS Final percentages and the transition timetable Making capital more risk absorbent – impact on AT1 and T2 Bail-in bonds Conservation Capital Buffer Why is the current Accord 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 Brief outline 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 removal of DVA How to model expected positive exposure Proposed Bond Equivalent approach The comprehensive risk approach US introduction of indicator methodology Practical applications: There will be 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? Proposals under the Fundamental Review of 2012 Division between Trading and Banking revisted Models to be calibrated in times of stress Assumption of differing market liquidity assumptions Changes to internal model approval Replacement of VaR by Expected Shortfall Movement of non-traded market risk into Pillar 1 Potential changes to credit risk within the Trading environment Day 2 Changes to the Securitisation Framework What went wrong, and what are the broad intentions? The IOSCO Code of Conduct Recalibration of the Supervisory Formula Specific risk charges and SF charges 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 2010 and 2011 European tests Regulatory stress tests: results from 2012 US tests Corporate Governance Lessons from the crisis Getting the basics right Continual risk monitoring Enhanced oversight – the role of the Board Risk Committee Other Changes being Introduced Cross border banking resolution – some unfinished work Overall Impact on the Banking Business Model Brief summary of likely changes in Basel IV Summary of Course