Course description
Basel III is a global regulatory standard on bank capital adequacy, stress testing, and market liquidity risk. It requires banks to use quantitative methods for risk projection and economic capital forecasting, and report results across the organization. Basel III is the third set of reform measures agreed upon by the Basel Committee on Banking Supervision.
In this course, there will be an in-depth analysis of why stress testing is vitally important to financial institutions, how to conduct stress testing, and why financial regulators are so preoccupied with stress testing in the post-2008 financial environment.
In particular, there will be an analytical examination of the kinds of scenarios that can lead to extraordinary credit losses, operational losses, and liquidity stress and can even threaten the survival of financial institutions.
This course is designed as an intermediate level in-depth look at the key provisions of the Basel III regulatory framework, the ongoing risk assessment practice within banks, and the vital role of stress testing.
Upon completion, participants will have a comprehensive understanding of internal risk assessment as required under Basel III and especially with reference to the ICAAP process.
Upcoming start dates
Upcoming start dates
Suitability - Who should attend?
This Basel III, Risk Assessment and Stress Testing Course is suitable for:
- All those working in the banking industry, including wealth managers, auditors, and treasury and product control professionals.
Outcome / Qualification etc.
By the end of the Basel III, Risk Assessment and Stress Testing Course, participants will be able to:
- Develop a deep understanding of the key elements within Basel III regulatory framework
- Understand the key metrics and procedures for assessing credit risk, market risk and operational risk
- Understand the vital importance of stress testing as the cornerstone of risk management
- Apply analytical skills for the identification of concentration of credit risk, the concentration of funding risk, and systemic liquidity risk
- Develop and formulate procedures and policies with respect to the best practice implementation of stress modeling and associated risk management protocols
Training Course Content
Day 1
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
Day 2
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
Day 3
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
Day 4
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
Day 5
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
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