Chrome Consultants

Financial Regulation under the Basel Accords – Theory, Practice, and Case Studies

Programme description & objectives

The overall goal of this two-day course is to provide participants with a general overview of current financial regulation under the Basel Accords. We achieve this by a combination of theory and practice, including case studies from financial institutions, as well as reviewing the actual regulatory documents from the Basel Committee for Banking Supervision (BCBS), the European Banking Authority (EBA), the EU Capital Requirements Regulation (CRR) and Capital Requirements Directive IV (CRD IV).

Key Learning Outcomes

  • Understand the complex structure of the Basel II and Basel III Accords, as well as the Liquidity Coverage Ratio and Net Stable Funding Ratio
  • Review the definitions of risk-weighted assets for credit, market and operational risks, including the alternative methodologies which can be used to calculate them
  • Describe the mechanics of counterparty credit risk and its implementation via the credit valuation adjustment (CVA)
  • Define economic & regulatory capital, with a focus on its various types including Tier 1, Additional Tier 1, & Tier 2, as well as the capital conservation and countercyclical buffers
  • Explore how liquidity risk is captured by the Liquidity Coverage Ratio and Net Stable Funding Ratio

Venues, Dates & Cost

VenuesDublinLondonDubaiEdmonton (CAN)Lagos/Abuja
DatesTBDTBDTBDTBDTBD
Cost$4,000 per participant (USD)(=N=)

For Whom

  • Monetary regulatory staff of Central Banks
  • Chief Risk Officers and Heads of Risk Management
  • Market, credit and operational risk specialists
  • Regulators, auditors and supervisors
  • Financial Engineers

Modules

Financial Regulation

  • Financial regulation: Is it possible?
  • The Bank for International Settlements (BIS)
  • The Basel Committee for Banking Supervision (BCBS)
  • Minimum Capital Requirements
  • Risk-weighted assets and regulatory capital
  • The three accords: Basel, Basel II, Basel III
  • The three pillars: Pillar I, Pillar II, Pillar III
  • The three risks: Credit, market and operational
  • Case study: Deutsche Bank (2016)

The Anatomy of the Basel Accords

  • Guided tour of the BIS, BCBS and the EBA websites
  • Basel II: International Convergence of Capital Measurement and Capital Standards (bcbs128)
  • Basel III: A global regulatory framework for more resilient banks and banking systems (bcbs189)
  • Capital Requirements Regulation (575/2013) (CRR)
  • Capital Requirements Directive (2013/36/EU) (CRD)
  • EBA Report: On Credit Valuation Adjustment (CVA) under CRR Article 456(2)
  • Group work: A mind map of Basel III

Credit Risk

  • What is credit risk?
  • The three key elements: EAD, LGD, PD
  • The three approaches: SA, FIRB, AIRB
  • Revisions to the standardized approach for credit risk (d347)
  • Excel lab: Computing FIRB and AIRB ourselves

Advanced Credit Risk

  • Specific exposures: Derivatives, contingent exposures, securitization, covered bonds
  • Credit risk mitigation techniques
  • Netting, collateral, credit derivatives
  • Counterparty Credit Risk in Basel III
  • Credit valuation adjustments (CVA)
  • Future developments: Basel IV, FRTB
  • Review of the CVA risk framework (d325)
  • Excel lab: CVA of an interest rate swap

Market Risk

  • What is market risk?
  • The standardized approach (SA)
  • The internal models approach (IMA)
  • Value at Risk (VaR) and Expected Shortfall (ES)
  • Stressed VaR and incremental risk charge
  • Minimum capital requirements for market risk (d352)
  • Excel lab: VaR and ES of General Electric Corp.
  • Case study: JP Morgan and the London Whale

Operational Risk

  • What is operational risk?
  • The basic indicator approach (BIA)
  • The standardized approach (SA)
  • The advanced models approach (AMA)
  • Standardized measurement approach for operational risk (d355)
  • Case study: Societe Generale and Jerome Kerviel

Regulatory Capital

  • Economic vs. regulatory capital
  • Tier 1, Additional Tier 1 and Tier 2
  • Deductions and contingent capital (CoCo)
  • SIFIs and GSIFIs
  • Leverage ratio under Basel III
  • Case study: Deutsche Bank

Liquidity Risk

  • Video: Bear Stearns & Co.
  • What is liquidity risk?
  • Funding liquidity
  • Asset liquidity
  • The liquidity coverage ratio (LCR)
  • The net stable funding ratio (NSFR)
  • Liquidity monitoring tools
  • Basel III: Liquidity coverage ratio and monitoring tools (bcbs238)
  • Basel III: The net stable funding ratio (d295)
  • Case study: Royal Bank of Scotland (2016)