SEGMENT 1:

Sean Campbell, Section Chief, Risk Analysis Section,
Federal Reserve Board

Revisions to the Basel II Market Risk Framework: Translating Key Lessons from the Financial Crisis into Trading Book Capital Measures
- The growth in size and scope of the Trading Book since the 1996 revision to the MRA
- The role of proposed changes to the MRA in improving regulatory capital
- A Brief Outline of the Proposed Changes
    - Improvements in data capture and quality
    - Improved capture of complex, i.e. non-linear, risks in regulatory VaR
    - Improved connections between front office pricing models and back office risk measurement
      systems
    - Incremental Risk Charge: capturing default and migration risk in the Trading Book.

SEGMENT 2:

Nancy Hunt, Acting Associate Director of the Capital Markets Branch, Policy Section, Division of Supervision and Consumer Protection,
Federal Deposit Insurance Corporation (FDIC)

Disclaimer: The following comments reflect my views on Basel II and are not necessarily the views of the Federal Deposit Insurance Corporation.

As we work our way out of the current financial crisis, much criticism has been heaped on Basel II, especially the modeling approaches for credit and market risk.

The Basel Committee on Banking Supervision has responded – in near record time – and finalized in July revisions to Pillars 1, 2 and 3 and the market risk amendment (or trading book), all of which are to be effective by the end of 2010.

The Committee also has a number of new initiatives under way to address: a supplementary measure to back stop the risk-based capital ratios, procyclicality of the Basel II internal ratings-based approaches for determining regulatory capital, additional issues related to the trading book capital requirements, and other key issues.

In the midst of the frenetic efforts to salvage Basel II, a key question remains. Basel II let banks to hold ever lower regulatory capital and then perversely increased the procyclicality of regulatory capital requirements at the worst possible time, which exacerbated the crisis. All the efforts to repair Basel II are geared to increasing bank regulatory capital but will this simply paper over the shortcomings of Basel II? Is it time to take a different approach and move the Basel II modeling approaches for regulatory capital into the supervisory pillar?

SEGMENT 3:

Don Vangel, Principal, Financial Services, and Advisor, Regulatory Affairs, Office of the Chairman,
Ernst & Young LLP

- Pillar II and ICAAP are likely to become increasingly prominent in the supervisory determination of
  "appropriate" capital, even as the Pillar I framework is adjusted to deal with procylicality concerns
  in setting regulatory minima.
- Rigorous and robust stress testing and scenario analyisis covering all risk material risks and
  their possible interactions, correlation assumptions etc, will likely be a central focus of supervisors
  in Pillar II
- Supervisory concerns about the rigor and robustness of stress testing could result in the
  supervisory imposition of a capital buffer
- The best defense is a good offense, and many institutions are working aggressively on developing
  an integrated, enterprise wide stress testing framework in order to undertake tests on a routine
  basis and to communicate the results to the governance bodies and to regulators.

SEGMENT 4:

Michael E. Bleier, Partner,
Reed Smith LLP

- Outline what is the role of capital in the banking environment.
- What is the purpose of the Basel Capital Rules
- Basel capital rules have been around since 1988, what caused Basel II to develop.
- Outline the basic structure of the Basel II capital rules.
- Describe current status of Basel II capital rules and some of the issues it raises.

SEGMENT 5:

Alok Sinha, Principal,
Deloitte & Touche LLP

- Basel II data requirements are exposing data management and data quality issues at the largest
  financial institutions
- Risk MIS and data systems had not kept pace with multiple mergers and acquisitions industry
  has gone through
- Traceability, data lineage and reconciliation to general ledger are key issues
- Data model and data governance issues impacting ability to respond efficiently
- Particularly challenging for structured products and counterparty exposure for repos / derivatives
- Basel provides an excellent opportunity to address strategic issues pertaining to risk data for
  decision support
- We see significant emphasis on data quality from regulatory standpoint.

SEGMENT 6:

Ashish K. Dev, Managing Director,
Promontory Financial Group, LLC

- Pro-cyclicality in Basel II capital
- Basel II capital is for credit, market and op risk not for liquidity risk (or volatility and risk premium
  arising from panic)
- Capital for Re-Securitization versus Securitization (new rules of July 2009 have the same underlying
  model)
- Market Risk Capital for securitization exposures and n-th-to-default credit derivatives in the trading
  book – knee-jerk reaction?