Bank Capital Adequacy Under Basel III

This course provides participants with a comprehensive overview of Basel III’s capital regulations for banks. The course covers current regulations as well the Finalisation of Basel III (commonly referred to as ‘Basel IV’). 

This is an interactive course, where real-life examples, case studies and exercises are used to illustrate key learning points and to enable participants to apply the concepts delivered throughout the course.

Key Learning Outcomes:

• Learn how minimum regulatory capital requirements have evolved, and understand the various capital types, including Common Equity Tier 1 (CET1), Additional Tier 1 (AT1), and Tier 2, as well as Basel III’s regulatory buffers
• Become more familiar with the alternative methodologies for calculating risk weighted assets for credit, market and operational risks

Target Audience:

The course is relevant to anyone wishing to gain a deeper understanding of bank capital regulations. It may be suitable for investors, risk managers, regulators, internal auditors, bankers and analysts. It is targeted at an intermediate level and assumes a basic understanding of accounting, financial products and banking functions.

Content:

• Day One
• Analytic Overview
• This section provides an overview of the regulatory background for banks. It follows the history of how the Basel Accords were developed and summarizes their capital and risk-weighted assets (RWA) components.
• Regulatory background
• The Basel Committee for Banking Supervision (BCBS)
• The three Basel Accords
• The three pillars
• Minimum capital, supervisory review and market discipline
• Finalization of Basel III overview
• Summary of Finalization of Basel III (‘Basel IV’)
• Timeline for implementation
• Regulatory Capital
• This section runs through the components of regulatory capital and their definitions. It then describes the minimum regulatory capital requirements, finishing with an overview of the leverage ratio.
•  Regulatory capital
• Common Equity Tier 1 (CET1)
• Additional Tier 1 (AT1)
• Tier 2 capital
• Capital buffers and Pillar 2
• Capital conservation, countercyclical and G-SIB buffers
• Pillar 2 add-on
• Minimum capital requirements
• Leverage ratio
• Leverage ratio rationale
• Basel III leverage ratio
• Credit Risk
• This section follows on to explore how credit RWA are derived. These are by far the largest category of RWA at most banks as they cover the primary risk in the loan book.
• Expected credit losses
• IFRS 9: three credit impairment stages
• FASB’s CECL
• BCBS expected loss
• The three approaches to credit RWA calculation
• The standardized approach (SA)
• The foundation internal ratings-based approach (F-IRB)
• The advanced internal ratings-based approach (A-IRB)
• Upcoming changes with the Finalization of Basel III
• Day Two
• Advanced Credit Risk
• This section carries on from the previous one on credit risk to work through the calculations of credit risk for trading book counterparties, primarily on derivatives transactions.
• Counterparty Credit Risk
• CCR exposure at default (EAD) and potential future exposure (PFE)
• The new standardized approach to CCR (SA-CCR)
• Credit valuation adjustments (CVA)
• Credit Risk Mitigation
• Basel treatment of derivatives netting
• Collateral recognition
• Guarantees and credit derivatives
• Securitization RWA
• Hierarchy for securitization risk-weighting
• Market Risk
• This section introduces sources of market risk in a bank and covers the regulatory capital requirements for market risk.
• The standardized approach
• Current market risk SA
• Market risk SA under the Finalization of Basel III
• Internal models approach (IMA)
• Value at risk (VAR) and stressed VAR
• Incremental risk charge
• The Fundamental Review of the Trading Book (FRTB)
• Expected shortfall
• Interest rate risk in the banking book
• Definition and Pillar 2 regulation
• Operational Risk
• This section looks into how operational risk is dealt with in the regulations and how RWA are derived.
• Defining operational risk
• Causes of operational risk
• BCBS classifications
• Current regulatory approach
• The basic indicator approach (BIA)
• The standardized approaches (SA and ASA)
• The advanced measurement approach (AMA)
• New standardized approach
• Business indicator component
• Internal loss multiplier