Basel II

Course Overview

This course equips the participants with a thorough understanding of the content of the Basel 2 agreements and the impact on banking operations and credit activities. It further focuses on the compliance aspects of Basel 2/3 and the application in emerging markets.

The content of the Basel agreements will be thoroughly analyzed as well as the COSO principles of operational risk management.

Following that time will be devoted to implementing the guidelines into policies and identifying the right controls for your business.

All aspects will be illustrated with examples and cases to master the techniques discussed and evaluate what works for your business.

Course content

Day 1

Introduction

• The bank for international settlement (BIS)
• History
• The first Basel capital agreements
• Standards and regulatory environment
• Regulatory & economic capital
• Factor weighting of assets
• On-balance sheet engagements
• Off-balance sheets engagements
• Examples of capital requirements
• Later modifications

The Basel II/III agreements

• Improving risk & asset management
• Aligning regulation and economic realities
• ‘Sufficient assets’ to offset risk
• The technical challenges from a bank/regulators’ point of view
• How much capital is sufficient capital
• The 3 pillar regulatory structure
• Comprehensive Basel III review and update

Pillar 1: Minimum capital requirements

• Purposes of Basel 2
• Scope of application
• Credit risk- approaches
• The standardized approach to credit risk
• Claims on corporates
• Interbanking claims
• Internal-ratings based approaches to credit risk
• Asset classes
• Definitions:
  • Probability of default
  • Maturity
  • Exposure at default
  • Loss given default

Day 2

Pillar 2: Supervision

• Key principles (from regulation to supervision)
• Supervisory review process

Pillar 3: Market discipline

• Disclosure requirements
• Quantitative and qualitative disclosures
• Guiding principles
• COSO principles on internal control systems for banking organizations
• The 13 principles of COSO
• The control environment
• Risk assessment
• Control activities
• Monitoring
• Types of control breakdowns at financial institutions
• Objectives & role of the COSO framework
• Integration in a larger risk management system
• Cornerstones of an internal controls process
• Role of internal audit
• Role & responsibilities of external auditors

Day 3

Operational risk

• What is operational risk
• Legal risk
• IT operational risk
• Operations and operational risk
• How operational risk evolves
• Quantification of operational risk
• Risk measurement methodologies for operational risk
• The Delphi method
• Identification & los categories

Approaches to operational risk

• Basic indicator approach (BIA)
• Standardized approach
• Alternative standardized approach
• Advanced Measurement approaches
• VaR (Value at risk)
• Calculating VaR
• Scorecards
• Stress testing
• Use of Monte Carlo simulations
• Standard normal distribution
• Loss distribution
• Self assessment

Day 4

Operational risk management

• Key functions for risk managers, Department Heads etc
• Sound risk management practices
• Operational risk insurance modes
• Redefining outsourcing
• Outsourcing & Basel 2 compliance
• Key risk of outsourcing arrangements

Basel 2 & emerging markets

• Key issues
• Graduality & flexibility
• Homogeneity
• Maintaining capitalization
• Diversification
• Sovereign risk analysis
• Bank-Borrowers and capital flows in emerging economies

Implications of and compliance with Basel 2

• Proposed changes to Basel 2
• Impact of current financial crises
• Implementation issues
• Securitization guidance under Basel 2
• Aligning Basel 2 with Sox-404 requirements
• Basel 2 and the board of directors
• Organizational changes required (operational risk management office)

Conclusions

• Achieving sustainable ROI
• Creating CA as a FI within Basel 2
• Impact of the financial crises
• Role of emerging economies
• Translating requirements into company policies
• Disclosure requirements

Delivering this course in-house for you to a number of participants could be very cost effective. Please call us on 020 7387 4484 to discuss this further.

If you have any questions about this seminar please write to us at post@redcliffetraining.co.uk.