The Basel II capital framework was set up to serve as effective guidelines to help protect banks against operation risk. The Recent financial crisis has exposed potential weaknesses in the Basel II capital framework. So called “re-securitization/ double counting” is a primary concern among banks and financial institutions. The Basel committee is working on a number of enhancements to address the issues.
The Knowledge Congress is assembling a panel of Basel II experts who will share their opinions in a two-hour webcast. They will discuss the substantive provisions of these rules as well as their impact on the banking business. Participants are welcome to join the live interaction with the speakers in a question and answer format in this event.
Course Level: Intermediate
Prerequisite: None
Method Of Presentation: Group-Based-Internet
Developer: The Knowledge Conference
Recommended CLE/CPE Hours: 2.0
(Please note, your State Bar or Accounting Board will make the final determination with respect
to continuing education credit.)
Advance Preparation: Print and review course materials
Course Code: 093857
Sean Campbell
Section Chief, Risk Analysis Section
Don Vangel
Principal, Financial Services, and Advisor, Regulatory Affairs, Office of the Chairman
Alok Sinha
Principal
Nancy Hunt
Acting Associate Director of the Capital Markets Branch, Policy Section, Division of Supervision and Consumer Protection
Michael E. Bleier
Partner
Ashish K. Dev
Managing Director
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.
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?
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.
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.
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.
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?
This teleconference will be of particular benefit to those involved in
- The implementing of Basel II and Bankers.
- Risk managers in financial institutions
- Rating agency analysts
- Financial controllers in large institutions
- Credit risk analysts
- Portfolio analysts / managers
- Treasurers
- Financial, Operational, Business Application and External Auditors
This is a must attend event for anyone interested in understanding BASEL II
- New guidance explained by the most qualified key leaders & experts
- Hear directly from key regulators & thought leaders
- Interact directly with panel during Q&A