Capital Adequacy Requirements for Banks (Basel II) and the Proposed Changes (Basel III)

INTRODUCTION

This course aims to educate participants to be not only proficient in factors that govern the capital markets but also understand what makes the market work. The course is the most effective training for professionals who are entering either risk and regulatory functions or investment banking and finance departments in corporates because it provides targeted education; a concise and comprehensive knowledge of the local capital market landscape.

COURSE OBJECTIVES

• They will appreciate the importance of regulating the bank’s capital adequacy requirement
• They will understand the historical development of capital adequacy requirement
• They will understand the different risks involved and the appropriate approaches to measure and report these risks.
• They will understand the different pillars of market supervision
• They will be able to distinguish the different approaches to measuring credit risk

TARGET PARTICIPANTS

Anybody involved in risk and regulation
Corporate bankers
Corporate finance staff
Credit analysts
ALM traders
Treasury sales and Trading staff
Regulators
Derivatives structure and marketers
Fixed income originators
Treasury operations managers
Treasury middle office officers
Risk Management executives
Corporate treasurers
auditors

COURSE CONTENT

Introduction
The balance sheet of a bank
The risk components
Systemic risk

Capital Adequacy Requirement: Basel I 1988
Cooke ratio
Credit risk weights
Limitations and the call for a new frame work

Amendment to Basel I: Market Risk
Treatment of Off-balance sheet instruments
Limitations

The New Frame Work: Basel II
Scope of application
The 3 Pillars of Market Supervision
- Capital Adequacy Requirement
- Supervisory Review Process
- Market Discipline

1. Pillar: Minimum Capital Adequacy
Regulatory capital
Risk-weighted assets
Market risk
Credit risk
Operational risk

2. Pillar: Supervisory Review Process
4 key principles
Specific issues
Other issues

3. Pillar: Market Discipline
General considerations
Disclosure requirements

Other Relevant Regulation
Liquidity reserves
Accounting Standard IAS 39 or GAAP equivalent
Non-Performing Loans (NPL)

What is Missing from Basel II
Diluted equity
International implementation
Correlation risk
Liquidity risk
Economic capital versus regulatory capital

The Proposal for Basel III
Reviewed capital proposal
Global liquidity framework
Transparency

The Capital Proposal
Improve quality of capital by strengthening common equity
Tier 1 to be strengthened
Capital conservation buffer
Countercyclical buffer
Additional loss absorption capacity for ‘too big to fail’ institutions
Non-risk based leverage ratio
Ordinary unwinding procedure

The Swiss Regulation: Bern I
Additional loss absorption buffer
Contingent Convertibles (CoCos)

The Global Liquidity Standard
Liquidity coverage ratio
Net stable funding ratio

Other changes
Public sector capital injections
OTC derivatives
Credit rating agencies
Accounting
Shadow banking

What about Basel 4
Other expected changes over time