Basel III, Risk Assessment and Stress Testing

Course Info

Length: 1 Week

City: Kuala Lumpur

Type: In Classroom

Available Dates

  • Mar-18-2024

    Kuala Lumpur

  • Apr-15-2024

    Kuala Lumpur

  • May-20-2024

    Kuala Lumpur

  • June-17-2024

    Kuala Lumpur

  • July-15-2024

    Kuala Lumpur

  • Aug-19-2024

    Kuala Lumpur

  • Sep-16-2024

    Kuala Lumpur

  • Oct-21-2024

    Kuala Lumpur

  • Nov-18-2024

    Kuala Lumpur

  • Dec-16-2024

    Kuala Lumpur

Dates in Other Venues

  • Mar-11-2024

    London

  • Mar-11-2024

    Amsterdam

  • Mar-18-2024

    Istanbul

  • Mar-25-2024

    Singapore

  • Mar-25-2024

    Paris

  • Apr-01-2024

    Dubai

  • Apr-01-2024

    Barcelona

  • Apr-08-2024

    London

  • Apr-08-2024

    Amsterdam

  • Apr-15-2024

    Istanbul

  • Apr-22-2024

    Barcelona

  • Apr-22-2024

    Singapore

  • Apr-29-2024

    Dubai

  • Apr-29-2024

    Paris

  • May-06-2024

    Dubai

  • May-06-2024

    Barcelona

  • May-13-2024

    Amsterdam

  • May-13-2024

    London

  • May-20-2024

    Istanbul

  • May-27-2024

    Singapore

  • May-27-2024

    Paris

  • June-03-2024

    Barcelona

  • June-03-2024

    Dubai

  • June-10-2024

    Amsterdam

  • June-10-2024

    London

  • June-17-2024

    Istanbul

  • June-24-2024

    Paris

  • June-24-2024

    Singapore

  • July-01-2024

    Barcelona

  • July-01-2024

    Dubai

  • July-08-2024

    London

  • July-08-2024

    Amsterdam

  • July-15-2024

    Istanbul

  • July-22-2024

    Singapore

  • July-22-2024

    Barcelona

  • July-29-2024

    Paris

  • July-29-2024

    Dubai

  • Aug-05-2024

    Dubai

  • Aug-05-2024

    Barcelona

  • Aug-12-2024

    Amsterdam

  • Aug-12-2024

    London

  • Aug-19-2024

    Istanbul

  • Aug-26-2024

    Singapore

  • Aug-26-2024

    Paris

  • Sep-02-2024

    Dubai

  • Sep-02-2024

    Barcelona

  • Sep-09-2024

    London

  • Sep-09-2024

    Amsterdam

  • Sep-16-2024

    Istanbul

  • Sep-23-2024

    Singapore

  • Sep-23-2024

    Barcelona

  • Sep-30-2024

    Dubai

  • Sep-30-2024

    Paris

  • Oct-07-2024

    Dubai

  • Oct-07-2024

    Barcelona

  • Oct-14-2024

    London

  • Oct-14-2024

    Amsterdam

  • Oct-21-2024

    Istanbul

  • Oct-28-2024

    Singapore

  • Oct-28-2024

    Paris

  • Nov-04-2024

    Dubai

  • Nov-04-2024

    Barcelona

  • Nov-11-2024

    London

  • Nov-11-2024

    Amsterdam

  • Nov-18-2024

    Istanbul

  • Nov-25-2024

    Singapore

  • Nov-25-2024

    Paris

  • Dec-02-2024

    Barcelona

  • Dec-02-2024

    Dubai

  • Dec-09-2024

    London

  • Dec-09-2024

    Amsterdam

  • Dec-16-2024

    Istanbul

  • Dec-23-2024

    Singapore

  • Dec-23-2024

    Barcelona

  • Dec-30-2024

    Paris

  • Dec-30-2024

    Dubai

Course Details

Course Outline

5 days course

 

Understanding The Role Of Regulatory Bank Capital
 
  • Overview of financial statements of banks – accounting principles
  • Composition of the balance sheet – types of assets and liabilities
  • Understanding the key elements of the P&L – statement of income
  • Review of the distinction between the banking book and the trading book
  • The equity capital of financial Institutions
  • Illustration of the contrast between liquidity and solvency issues
  • Distinguish between going concern and gone concern capital
  • Explanation of bail-in able capital
  • Accounting and regulatory definitions for own funds
  • Prudential filters and revaluation reserves, AOCI
  • Treatment of goodwill, intangibles, deferred tax assets
  • Treatment of securitizations and off-balance sheet exposures
  •  
Requirements for Qualifying Capital under Basel III

 

  • Definitions of Regulatory Capital – Core Tier 1, Tier 2
  • Core Tier 1 – equity capital and disclosed reserves
  • Supplementary Capital – Tier 2 – subject to the discretion of supervisor/central bank
  • Revaluation reserves – limitations
  •  Hybrid capital – equity-like e.g. perpetual preferred shares
  • Subordinated debt instruments – criteria and restrictions
  • Short-term subordinated debt covering market risk (Tier 3)
  • Loss of absorbency requirements
  • Deductions from the capital – goodwill and subsidiaries
  • Supervisory discretion over cross-holdings of other banks
 
Basel Treatment of Market Risk

 

  • Value at Risk (VaR) – rationale, theory and methods of calculation
  • Limitations of parametric VaR
  • What about tail risk – does VaR capture this adequately?
  • Risk weightings for market risk
  • Standardized approach
  • Interest rate risk in both the trading book and banking book
  • Overview of Internal Models Approach (IMA)
  • Impact of market risk on instruments in the trading book
  • Volatility and market stress
  • Incremental Risk Charge
  • Off-Balance Sheet items

 

Operational Risk under Basel

 

  • Definition of Operational Risk introduced into the Basel II framework
  • The life cycle of Operational Risk
  • Basel measurement approaches:
    • - Basic Indicator
    • - Standard Approach
    • - Advanced Measurement Approaches
  • Risk weightings under each approach
  • Rogue trading – the severity of losses
  • Scenario generation – KRI’s, management involvement in adverse scenario modeling
  • Quantifying the exposure and severity of “outliers” and tail risk
  • Loss Distribution Approach (LDA) and Scenario Based Analysis (SBA)
  • Application of VaR techniques to operational risk (Op VaR)
  • Loss identification – measurement, management, monitoring, reporting
  • Integrating operational risk management into the organizational risk management framework

 

Alternatives to using external credit ratings

 

  • Developing internal scoring models for assessing corporate loan exposures
  • The contrast of developed and emerging economy approaches to credit risk assessment

 

Credit Concentration Risk and Large Exposures
 
  • Concentration risk – not adequately captured under the Pillar One approaches
  • A brief summary of the Supervisory Review and Evaluation Process (SREP)
  • Treatment of Concentration Risk within the Pillar II ICAAP framework
  • Identifying sectoral concentration risk – general principles
  • Quantifying concentration risk in GCC

 

Modelling and Stress Testing
 
  • Explanation of the techniques for conducting stress tests
  • Backtesting using historical returns
  • Scenario generation – stress testing using hypothetical returns
  • Sizes of historical samples – are they sufficiently large to include a wide variety of conditions?
  • The danger of optimizing risk management parameters – over-fitting to the historical data
  • Modeling methods – contingency scenarios
  • Limitations of the normal distribution as the basis for probabilistic modeling

 

Drivers of Counter-party Risk (CCR)
 
  • Separating market risk impact on trading positions from CCR
  • Pricing counterparty risk – use of spreads, ratings
  • Probability of Default (PD) – estimation of PD and Exposure at Default (EAD)
  • Expected positive exposure (EPE)
  • Loss Given Default (LGD) and recovery rates
  • Counterparty risk in credit default swaps
  • Counterparty risk in interest rate swaps
  • Experience of AIG and mono-lines insurance companies in financial crisis
  • The role of a central clearing house
  • Stress analysis and randomized stress scenarios
  • Market factors which drive counter-party credit deterioration
 
Credit Value Adjustment (CVA) and collateral
 
  • Definition Credit value adjustment (CVA)
  • Defining credit exposure in relation to market risk impact on derivatives
  • Expected positive exposure and worst-case exposure
  • Nature of collateralization – ISDA treatment
  • Benefits of effective collateral management
  • Impact of netting on CVA
  • Impact of collateral on CVA
  • Hedging and credit default swaps
  • Eligible hedging instruments
  • Bilateral counterparty risk and collateral
  • Over-collateralized positions and risk of counterparty default

 

Liquidity Coverage Ratio (LCR)

 

  • Explanation of Liquidity Coverage Ratio (LCR)
  • Criteria for inclusion as High-Quality Liquid Assets (HQLA)
  • Categories of HQLA – Level 1, Levels 2A and 2B
  • 30 day stressed market outflows
  • Runoff rates
  • Net Stable Funding Ratio (NSFR)
  • Explanation of available funding (ASF) versus required funding (RSF)
  • Weighting factors for ASF and RSF
 
Impact of Basel III on the Business Model of Banking
 
  • Impact of the Basel III LCR on balance sheet exposures to non HQLA assets
  • Hoarding of Level 1 HQLA assets
  • Unintended consequences for macro liquidity from Basel III regulations
  • Linkage of sovereign and domestic banking credit quality
  • Decreased inventories of corporate bonds being held by primary dealers
  • Requirements for unrealized losses with AFS securities to be deducted from CET1
  • Explanation of Contingent Capital instruments (CoCo’s)
  • Role of CoCo’s as a contributor to AT1 for capital adequacy purposes
  • A brief history of CoCo’s an inability to see the consequences from conversion
  • Sovereign wealth fund exposure to CoCo’s – elevated liquidations of SWF assets
  • Possible suspensions/reductions of coupon payments of CoCo’s
  • Collateral netting across CCP’s
  • Shortage of collateral – implications, the effect on the bank’s ROE
  • Impact of TLAC on G-SIB banks

 

Implementation and Reporting Systems for Basel Compliance
 
  • Efficacy of the monitoring and reporting mechanisms within banks and how they interface with overall risk management
  • Avoiding silos
  • Accounting, surveillance, IT systems and data storage back-up systems
  • Monitoring of controls – quality and integrity of the procedures
  • Development of contingency scenarios
  • Role of the Chief Risk Officer
  • Role of the Internal Auditor
  • Developing dashboards for KRI’s for credit, market, and operational risk

Course Video