Basel “IV”: What’S Next for Banks? Implications of Intermediate Results of New Regulatory Rules for European Banks
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Basel III: Post-Crisis Reforms
Basel III: Post-Crisis Reforms Implementation Timeline Focus: Capital Definitions, Capital Focus: Capital Requirements Buffers and Liquidity Requirements Basel lll 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 1 January 2022 Full implementation of: 1. Revised standardised approach for credit risk; 2. Revised IRB framework; 1 January 3. Revised CVA framework; 1 January 1 January 1 January 1 January 1 January 2018 4. Revised operational risk framework; 2027 5. Revised market risk framework (Fundamental Review of 2023 2024 2025 2026 Full implementation of Leverage Trading Book); and Output 6. Leverage Ratio (revised exposure definition). Output Output Output Output Ratio (Existing exposure floor: Transitional implementation floor: 55% floor: 60% floor: 65% floor: 70% definition) Output floor: 50% 72.5% Capital Ratios 0% - 2.5% 0% - 2.5% Countercyclical 0% - 2.5% 2.5% Buffer 2.5% Conservation 2.5% Buffer 8% 6% Minimum Capital 4.5% Requirement Core Equity Tier 1 (CET 1) Tier 1 (T1) Total Capital (Tier 1 + Tier 2) Standardised Approach for Credit Risk New Categories of Revisions to the Existing Standardised Approach Exposures • Exposures to Banks • Exposure to Covered Bonds Bank exposures will be risk-weighted based on either the External Credit Risk Assessment Approach (ECRA) or Standardised Credit Risk Rated covered bonds will be risk Assessment Approach (SCRA). Banks are to apply ECRA where regulators do allow the use of external ratings for regulatory purposes and weighted based on issue SCRA for regulators that don’t. specific rating while risk weights for unrated covered bonds will • Exposures to Multilateral Development Banks (MDBs) be inferred from the issuer’s For exposures that do not fulfil the eligibility criteria, risk weights are to be determined by either SCRA or ECRA. -
Back-Testing of Expected Shortfall: Main Challenges and Methodologies
© CHAPPUIS HALDER & CO Back-testing of Expected Shortfall: Main challenges and methodologies By Leonard BRIE with Benoit GENEST and Matthieu ARSAC Global Research & Analytics 1 1 This work was supported by the Global Research & Analytics Dept. of Chappuis Halder & Co. Many collaborators from Chappuis Halder & Co. have been involved in the writing and the reflection around this paper; hence we would like to send out special thanks to Claire Poinsignon, Mahdi Kallel, Mikaël Benizri and Julien Desnoyers-Chehade © Global Research & Analytics Dept.| 2018 | All rights reserved Executive Summary In a context of an ever-changing regulatory environment over the last years, Banks have witnessed the draft and publication of several regulatory guidelines and requirements in order to frame and structure their internal Risk Management. Among these guidelines, one has been specifically designed for the risk measurement of market activities. In January 2016, the Basel Committee on Banking Supervision (BCBS) published the Fundamental Review of the Trading Book (FRTB). Amid the multiple evolutions discussed in this paper, the BCBS presents the technical context in which the potential loss estimation has changed from a Value-at-Risk (VaR) computation to an Expected Shortfall (ES) evaluation. The many advantages of an ES measure are not to be demonstrated, however this measure is also known for its major drawback: its difficulty to be back-tested. Therefore, after recalling the context around the VaR and ES models, this white paper will review ES back-testing findings and insights along many methodologies; these have either been drawn from the latest publications or have been developed by the Global Research & Analytics (GRA) team of Chappuis Halder & Co. -
Better Market Intelligence with Smart Search Anaging Uncertainty and Risk in Business Requires a 1 Mcomprehensive Market Intelligence Approach
Better Market Intelligence with Smart Search anaging uncertainty and risk in business requires a 1 Mcomprehensive market intelligence approach. But maintaining ongoing knowledge of competitor activity/strategies, not to mention the latest legal and regulatory shifts and economic factors, is more difficult than ever before. Defining a competitive set has never been more complicated A clear view of your competitor landscape is essential. Unfortunately, comprehensively tracking competitors can be imprecise and hard to measure when competitive lines are shifting such as: Entrenched players expand into a new vertical (e.g., Amazon buys Whole Foods) Disruptive startups radically change a competitive landscape overnight (especially since disruptors are hard to track due to a nascent digital footprint). Information overload + data fatigue Historically, market intelligence programs operated under the belief that analysis of competitors could be based exclusively on publicly available information.1 While some high quality secondary sources of A wealth of information information—for example, broker research—are not is a double-edged sword. free for the general public, it is true that a wealth of It creates noise, making it information about companies is readily available on difficult to hone in on the the Internet. most relevant information But a wealth of information is a double-edged sword. to your precise interests. It creates noise, making it difficult to hone in on the most relevant information to your precise interests. It’s easy to publish unverified, uncited information, making it too easy for a company to push a strategic communications message that’s impossible to verify (for example, “We’ll be first to market with this cancer-stopping drug”). -
Fundamental Review of the Trading Book (FRTB) | Accenture
FROM THEORY TO ACTION In January 2016, the Basel Committee on Banking Supervision (BCBS) published final rules for the market risk framework for capital requirements. The BCBS proposed the end of 2019 as a compliance deadline for banks with a significant presence in capital markets.1 The new rules – known as Fundamental FTRB encompasses a revised internal Review of the Trading Book or FRTB – are model approach characterized by a shift designed to address Basel 2.5 issues from Value-at-Risk (VAR) to the Expected such as the under-capitalization of the Shortfall (ES) measure of risk, for a better trading book, capital arbitrage between reflection of “tail risk” and capital adequacy banking and trading books, and internal during periods of significant financial risk transfers. Through the FRTB rules, market stress.3 BCBS is seeking, for example, to establish a more objective boundary between the trading book and the banking book, and to eliminate capital arbitrage between the regulatory banking and trading books.2 2 FUNDAMENTAL REVIEW OF THE TRADING BOOK (FRTB) CHALLENGES TO FRTB IMPLEMENTATION Accenture believes that adoption of the FRTB • Additional investment in technology rules presents banks with major challenges infrastructure for risk calculation. in areas related to business operations and infrastructure provisioning. According FRTB rules require banks to strengthen to our analysis and estimates we expect: their existing market risk infrastructure and overall technology capabilities, with • Significant increases (as much as additional computational capacity to 40 percent) in market risk capital support calculations as required under new requirements; capital requirements. Banks should also plan for additional complexity in operations and • Higher costs for rules implementation processes due to changed desk structures programs – ranging from $100 million and should undertake the standardization to $250 million for large banks; of data sources to support these changes. -
Fundamental Review of the Trading Book – Interim Impact Analysis
Basel Committee on Banking Supervision Fundamental review of the trading book – interim impact analysis November 2015 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2015. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9197-293-7 (print) ISBN 978-92-9197-294-4 (online) Fundamental review of the trading book – interim impact analysis (November 2015) Contents 1. Background ....................................................................................................................................................................... 1 2. Key findings ....................................................................................................................................................................... 2 3. Sample of participating banks ................................................................................................................................... 5 4. Analysis of the proposed standardised and internally-modelled approaches ....................................... 7 5. Trading desk structure ................................................................................................................................................ 10 6. P&L attribution test ...................................................................................................................................................... 12 7. Non-modellable risk factors .................................................................................................................................... -
Basel IV Quantitative Impact Study on Cyprus Banks September 2020 1 Basel IV | Quantitative Impact Study on Cyprus Banks
Basel IV | Quantitative Impact Study on Cyprus Banks Basel IV Quantitative Impact Study on Cyprus Banks September 2020 1 Basel IV | Quantitative Impact Study on Cyprus Banks The aim of this paper is to provide an (especially SME) and retail customers, Summary overview of the changes in Credit Risk as well as project financing (as part of quantification under Basel IV, focusing on specialised lending). Banking-book credit risk requirements both Our most recent publication from a Standardised and Internal Ratings Analysing and understanding how the examines the impact of Basel IV Based (IRB) approach. reforms will affect the various portfolios of on Cyprus Banks. a bank and how these drive the decrease Our paper also provides guidance on the in required capital, is of paramount In particular, this article steps required to begin understanding importance to Cyprus Banks to ensure focuses on the updated Credit the impact of the reforms on required required capital is allocated appropriately Risk assessment framework. data, changes in processes, modelling and to each of the components of a bank. governance. Banks are therefore challenged to start Our analysis indicates that collecting new data as required by the Cyprus Banks are expected to For our analysis, we have performed reforms. a Quantitative Impact Study (QIS) to have a reduction in capital understand the impact across the different Separate to the Standardised approach requirements as a consequence portfolios of a typical Cyprus Bank, (SA) reforms, our paper considers the Basel of the revised risk-weights shedding a light on which components of IV changes under the IRB approach. -
Defaulted Exposures
Defaulted Exposures Summary 1. The Standardised Approach definition of past-due loans is broadened to match the IRB definition of default. 2. The new definition now includes: a) Exposures, rather than just loans, that are past due for more than 90 days. b) Exposures to a “defaulted borrower” who is, in the opinion of the bank, “unlikely to pay” its credit obligation in full. 3. By mistake or by design the Standardised Approach floor of 72.25% adds a significant capital charge to the losses already covered by the Expected Losses calculated in the IRB Approaches. Review A. Current treatment- a refresher The Standardised Approach does not actually deal with the concepts of defaulted exposures or default as such. There are therefore no definitions beyond the fact that this asset class consists of loans that are more than 90 days past due. These loans are risk-weighted as follows: • 150% risk weight when specific provisions are less than 20% of the outstanding amount of the loan. • 100% risk weight when specific provisions are no less than 20% of the outstanding amount of the loan. Note that: 1. The risk weight is applied to the loan after deducting specific provisions or write-offs, if any. ©2020 BankT&D Consulting Limited www.banktandd.com 2. If a portion is covered by a guarantee or collateral, the risk weight only applies to the unsecured portion. B. Basel IV revisions 1. Scope and concepts The major change is the broadening of the definition. Basel IV introduces the concept of “defaulted exposure”, which is: 1. -
Basel IV and Proportionality Initiatives
Basel IV and proportionality initiatives Upcoming changes to the Canadian capital and liquidity framework Introduction Enhancements to risk-based capital requirements and minimum Q1-2020. Attention is now focused on the implementation of liquidity and funding standards for Deposit-Taking Institutions final Basel III reforms, informally referred to as ‘Basel IV’, which (DTIs) are two foundational aspects of post-financial crisis introduces extensive revisions to the calculation of Risk-Weighted reforms introduced by Basel III. In Canada, initial Basel III reforms Assets (RWA) for Pillar 1 risks. OSFI’s proposed policy direction dedicated to raising the quality and quantity of capital have and implementation timelines for Basel IV are included in OSFI’s already been implemented. The domestic implementation of July 2018 discussion paper, Implementation of the final Basel III Basel III liquidity and funding standards will be complete when reforms in Canada. DTIs begin reporting the Net Stable Funding Ratio (NSFR) in Figure 1: Summary of basel capital, leverage and liquidity requirements Focus of CET1 Basel III: ratio Raising the Capital LCR, NSFR Leverage ratio quality and quantity of capital Focus of RWA Basel IV: Revising how risks are calculated Risk positions SA for Securitisation Operational SA for IRB for Market risk CVA risk Output measuring risk credit risk credit risk (FRTB) floor counterparty credit risk Source: Workshop Basel IV, KPMG International, 2018. While the Basel framework was originally designed to apply to which obligates DTIs to achieve compliance with updated large, internationally-active banks, domestic regulators including standards in short order. OSFI have applied Basel standards to a wider set of banks In this paper, we provide a consolidated overview of the for pragmatic reasons. -
Competitive Intelligence: Systematic Collection and Analysis of Information
Journal of Critical Reviews ISSN- 2394-5125 Vol 6, Issue 5, 2019 Competitive Intelligence: Systematic Collection and Analysis of Information Kundharu Saddhono1, Jacky Chin2, Apriana Toding3, Muhammad Nuzul Qadri4, Ismail Suardi Wekke5 1Universitas Sebelas Maret, Indonesia. E-mail: [email protected] 2Industrial Engineering Department, Mercu Buana University, Jakarta 11650, Indonesia 3Department of Electrical Engineering, Universitas Kristen Indonesia Paulus, South Sulawesi, Indonesia 4Sekolah Tinggi Ilmu Ekonomi Enam Enam, Kendari, Indonesia 5Sekolah Tinggi Agama Islam Negeri (STAIN) Sorong, Indonesia Received: 17.11.2019 Revised: 14.12.2019 Accepted: 18.12.2019 Abstract: Nowadays data is that the economic basis of every company. One has to understand the merchandise, the technology behind it, however additionally the client, the contestant and different circumstances that influence the business. The scientific term for the need information of data gathering and its transformation into applicable knowledge is Competitive Intelligence. This thesis focuses on three queries concerning competitive intelligence that area unit coupled during a model. First off it offers an outline concerning the foremost vital styles of competitive intelligence. Supported three sorts, specifically Market Intelligence, contestant Intelligence and Internal Intelligence, it raises the question if there area unit industry- specific necessities and general key aspects of the activity. The main focus cluster consists of fifteen international corporations from completely different industries that were analyzed with regard to military operation and kinds of competitive intelligence activities. Secondly the thesis considers legal aspects. It asks however effective international treaties and European laws area unit in terms of legal action of unfair competition and protection of material possession rights. -
Basel Iv Compliance
REPRINT risk & R&Ccompliance DATA PRIVACY INBASEL EUROPE IV COMPLIANCE REPRINTED FROM: RISK & COMPLIANCE MAGAZINE JAN-MARJAN-MAR 20202014 ISSUE rriskisk && && compliance compliance������������ JAN-MAR 2014 RC ��������������������������������� RC www.riskandcompliancemagazine.com Inside this issue: FEATURE The evolving role of the chief risk officer EXPERT FORUM Managing your company’s regulatory exposure ������������������ HOT TOPIC ������� Data privacy in Europe ������������������������� ���������������������� ������������ ���������������������� �������������������� ��������� ������������������������� ����������������������������� www.riskandcompliancemagazine.com VVisitisit the website to request a free copy of the full e-magazine To learn more about how SAS can help drive business evolution with intelligent Published by Financier Worldwide Ltd [email protected]@financierworldwide.com risk analytics, please visit sas.com/risk. © 20202014 Financier Worldwide Ltd. All rights reserved. risk & R&Ccompliance www.riskandcompliancemagazine.com 2 RISK & COMPLIANCE Jan-Mar 2020 www.riskandcompliancemagazine.com MINI-ROUNDTABLE MINI-ROUNDTABLE BASEL IV COMPLIANCE www.riskandcompliancemagazine.com RISK & COMPLIANCE Jan-Mar 2020 3 BASEL IV COMPLIANCE MINI-ROUNDTABLE PANEL EXPERTS Luís Barbosa Partner PwC T: +351 213 599 151 E: luis.fi[email protected] Luís Barbosa is currently leading PwC’s European network in the area of risk modelling & risk-weighted assets (RWA) and is responsible for the credit risk -
(RCAP) Assessment of Basel III Regulations –
Basel Committee on Banking Supervision Regulatory Consistency Assessment Programme (RCAP) Assessment of Basel III regulations – United States of America December 2014 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2014. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9197-012-4 (print) ISBN 978-92-9197-011-7 (online) Contents Glossary ................................................................................................................................................................................................ 1 Preface ................................................................................................................................................................................................ 3 Executive summary ........................................................................................................................................................................... 5 Response from United States ....................................................................................................................................................... 7 1 Context, scope and main assessment findings ................................................................................................... 8 1.1 Context ............................................................................................................................................................................... -
FRTB Standardized Approach for Market Risk
A Bloomberg Professional Services Offering Bloomberg Terminal FRTB Risk & Valuations Standardized Approach for market risk Contents 03 Bloomberg’s FRTB SA Solution 05 An open architecture 06 Why Bloomberg for FRTB 07 Learn more FRTB Standardized Approach for market risk The Fundamental Review of the Trading Book (FRTB) is the biggest global sell-side regulatory change that has taken place in more than two decades. It completely overhauls the framework for market risk as a result of the severe market stress in 2007-08. FRTB was created to ensure that regulatory market risk models deliver reliable capital outcomes and promote consistent implementation of the standards across jurisdictions. The Standardized Approach (SA) is required for all entities regulated under the Basel market risk regime, regardless of whether or not they also run the Internal Models Approach (IMA). The SA is a capital charge consisting of: • Sensitivities-based Method (SBM) — a parametric market risk calculation based on standardized risk factor sensitivities and volatilities and correlations specified by the Basel Committee. • Default Risk Charge (DRC) — a jump-to-default measure for individual issuers as well as securitizations based on standard netting rules to capture hedging effects. • Residual Risk Add-On (RRAO) — an additional charge for non-vanilla instruments whose risk is not captured by either of the two metrics above. FRTB standardized approach The Standardized Approach for Market Risk Sensitivities-based Method: Capital Default Risk Charge (DRC) Residual risk add-on (RRAO) charges for delta, vega and curvature for prescribed risk classes risk factor sensitivities within a Risk weights applied to notional amounts prescribed set of risk classes • Default risk: non-securitization.