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Basel III

Implementation - 2 day workshop

The Basel III proposals are a long-term package of changes that are due to commence on 1 January 2013 and, based on the Commission’s timetable, the transition period is expected to run until 2021. Will it be a “work in progress” as some risk professionals think, or will it roll out as proposed. Some measures are due imminently, liquidity and core funding, others still seem a long way off. We already have Basel 2.5 in place and the full impact of the Vickers Report and its potential impact globally has yet to be determined. This course will take you through the process, will explain the rationale behind the various changes and will consider the most effective methods of preparing planning and coping with those changes which seem certain to happen as well as those that are most likely.

Learning objective

Participants will gain in-depth knowledge of approaches to risk and capital management with particular emphasis on:

Who should attend

Risk management, finance, audit and compliance staff and management involved in developing or reviewing approaches to risk management, capital management, risk adjusted performance measures, and the ICAAP.

Knowledge pre-requisites

Some knowledge of finance and risk management is essential.

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The course is delivered in 15 sessions which are outlined below

Session 1: Introductory Background

  • Overview of banking ­ balance sheet, gearing, asset types, interest margin, funding sources
  • Background to banking regulation and local regulators
  • Definitions of capital and return on equity, capital ratios, RWA
  • Market risk types
  • Credit risk types
  • Operation risk types
  • Liquidity risk
  • Other risks
  • Measuring risk
  • Regulatory failures and other issues

Case Study: Lehman Brothers and the credit crunch

Session 2: Evolution of Bank Supervision

  • Original Basel accords
  • Basel II background & purpose
  • Strengths and weaknesses
  • Banking Trading book split
  • Calculating capital under the three accords

Session 3: Overview of Basel III Proposals

  • What are the fundamental new proposals under Basel III?
  • Definitions of Regulatory Capital ­ Tier 1, 2 and 3
  • Amount of capital ­ increased base requirements, stricter definition
  • Hybrid capital issues ­ CoCos and others
  • Ratios between Regulatory Capital Tiers
  • Conservation and other capital buffers
  • Anti-cyclical buffers
  • Systemically Important Financial Institutions (SIFIs)
  • Liquidity standards and ratios ­ stable funding
  • Leverage ratios
  • Other issues

Session 4: Time-table for Basel III

  • Proposed timescales
  • How will implementation be phased in?
  • How will it affect your market
  • What does the market think will happen
  • Likely changes
  • Vickers Report?
  • SIFI’s

Session 5: Basel III ­ The key proposals

  • Updated Capital definitions
  • Risk based capital ratios
  • Countercyclical Capital Buffers
  • Forward looking provisioning
  • Counterparty risk and Securitisation Liquidity
  • Stressed var
  • CVA
  • Internal ratings
  • Economic capital
  • Pillar II issues
  • Firm wide risk management
  • Capital modelling and planning
  • Pillar III issues
  • Greater risk disclosure
  • Transparency
  • Transition Arrangements

Session 6: Impact of Basel III

  • Proposed timescales
  • How will implementation be phased in? How will Basel III affect a bank’s business model?
  • Funding issues ­ use of repo, interbank, deposits
  • Capital issues
  • RoE
  • Lending businesses
  • Trading businesses
  • Structured products
  • Securitisation
  • Other business types
  • Designation of SIFI
  • How will this effect bank strategy?
  • Will it change how banks are structured and managed?

Session 7: Implementation Issues

  • What challenges does Basel III present for banks?
  • Systems and data
  • Personnel and training
  • Internal controls and monitoring
  • Reporting and documentation
  • Models and modelling
  • Capital raising
  • Strategic reviews

Session 8: Systemically Important Financial Institutions

  • SIFIs and G-SIFIs
  • Improvements to resolution regimes
  • Additional loss absorption capacity
  • More intensive supervisory oversight
  • Stronger robustness standards
  • Peer review
  • Developments at the national and regional level
  • The Financial Stability Oversight Council (FSOC)
  • The European Systemic Risk Board (ESRB)
  • Strengthening SIFI supervision

Session 9: Systemically Important Markets and Infrastructures (SIMIs)

  • The Basel Committee and Financial Stability Board & OTC derivatives
  • Derivative counterparty credit exposures to central counterparty clearing houses (CCPs)

Session 10: The Impact of Basel III on different Bank structures

  • Investment Banking, Corporate Banking, Retail Banking
  • Investment banks are primarily affected, particularly in trading and securitization businesses
  • The new capital rules have a substantial impact on profitability
  • Banks with insurance subsidiaries
  • Minority investments after Basel III
  • Interaction between Solvency II and Basel III
  • Regulatory Arbitrage after Basel III

Session 11: Stress testing requirements

  • What does “forwards looking stress testing mean
  • Regulatory requirements for stress testing frameworks
  • Creating meaningful scenarios allowing for activities and risk profile
  • Introducing qualitative scenarios into quantitative tests
  • Determining realistic risk parameters
  • Reverse stress testing. What do regulators demand
  • Stress testing for the different risk types
  • What do you do with the results
  • Getting management buy in
  • Reporting results to management and regulators
  • Strategies for remedies and action according to results

Session 12: Implementing Liquidity Risk standards and monitoring

  • The timetable
  • Identifying the challenges
  • Methodologies for LCR
  • Composition and stock of “high quality liquid assets”
  • Establishing total net cash outflows
  • Methodologies for NSFR
  • What is “stable funding”
  • Stress testing your liquidity framework
  • Managing contractual maturity mismatch
  • Accurately pricing your liquidity needs
  • How will banks be appraised by ratings agencies in the new Basel III environment?
    • Capital
    • Risk management
    • Liquidity and funding

Session 13: Impact of Basel III on funding requirements

  • The timetable
  • Making the most effective use of collateral for funding
  • Hedging refinancing risk
  • Funds Transfer Pricing strategies
  • Effectively mitigating the risk of concentration of funding

Session 14: Getting it “Right”

  • The timetable
  • What lessons have been learnt?
  • Determining the impact of Basel III on risk appetite
  • How effective are your internal risk controls?
  • Implementation of improved KRIs across the organisation
  • Outlining the increased demands for board and senior management accountability,    transparency and clear reporting standards
  • Basel III guidelines for a restructuring of the whole system of compensation
    • Highlighting the need to crystallise the relationship between compensation, profit and risk

Session 15: A holistic implementation of Basel III

  • The timetable
  • Establishing the Basel III implementation team
  • What are the costs of Basel III implementation?
  • How will Basel III implementation impact your IT infrastructure?
  • Ensuring enterprise-wide awareness of Basel III requirements and responsibilities
  • Securing management buy-in for all aspects of Basel III implementation
  • Optimising both internal and external reporting channels as a feature of Basel III    implementation
  • Putting into place internal controls and monitoring
  • Ensuring a close relationship and clear communication with the regulator throughout the whole implementation process
  • Sourcing and investing in technology solutions
  • Managing risk throughout the implementation lifecycle
  • Auditing Basel III implementation

Session 5: Basel and Islamic Finance

Case Study: What are the key issues faced by Islamic institutions in implementing the Basel Accord?  How can these be overcome?

About Us

Learning through action - every program we deliver is highly practical and addresses real live issues.  We use simulations, exercises and case studies and all our methods are based on the latest neuroscience and positive psychology research findings.  Everything we deliver and challenge our participants to think about leads back to one simple question ­ “what am I going to do differently back at work and how?”.

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