Bâle 2 & les entreprises ACI Belgium 20 octobre 2005 La vision du banquier Alain de Brauwere -...
Transcript of Bâle 2 & les entreprises ACI Belgium 20 octobre 2005 La vision du banquier Alain de Brauwere -...
Bâle 2 & les entreprises
ACI Belgium20 octobre 2005
La vision du banquier Alain de Brauwere - Basel2 Coordinator - Fortis Bank
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AgendaAgenda
1. Bank’s objectives and constraints
2. Fortis Bank overall targets
3. Relationship between the bank and its customer
3Bâle 2 : La vision du banquier - 20 octobre 2005
BASEL REVISED FRAMEWORK (June 2004)
Strengthen soundness & stability of international banking system
Promote stronger risk mgt practices
MinimumRequired Capital
SupervisoryReview
Market Discipline
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BASEL REVISED FRAMEWORK (June 2004)
PILLAR 2Supervisory review
4 principles
Intern
al assessmen
t
Su
pervisory review
Cap
ital > m
inim
um
Su
pervisory in
tervention
PILLAR 3Market discipline
Disclosure requir’ts
Cap
ital
Cap
ital adeq
uacy
P 1 m
easurem
ent m
ethod
s and
results
Risk
Exp
osures
PILLAR 1Minimum capital requirement
(New) Standardised Approach - NSA
Evolutionary approaches
Internal Ratings Based - IRB
Foundation IRB Approach - FIRBAAdvanced IRB Approach - AIRBA
Basic Indicator Approach - BIAStandardised Approach - STA
Standard Method (Conversion CRD risk)Simulation Analysis Method
Credit Risk
Operational Risk
Market Risk
Advanced Measurement Appr - AMA
Value at Risk models
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Basel RF - PILLAR 1 : MINIMUM REQUIRED CAPITALRisk assets ratio
Capital (Tier 1 + 2 + 3)
Credit risk + Market risk 8%
+ Operational risk
Unchanged, but•Impacted by IFRS•Limited to Unexpected Loss•Under review by BC & EC
Unchanged, but•Capital covers Unexpected Loss•Shortfall coverage EL by provisions
Unchanged, butDefinition of Banking& Trading Books reviewed
New : Add-onNew approaches•Risk sensitive•Based on Bank own estimates•Credit risk mitigation integrated
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European Capital Requirements Directive - CRD
• Scope All credit institutions (=banks) All investment firms
• Level of application CRD is applicable primarily on an individual basis CRD is also to be applied at sub- and consolidated levels
• Supervision - Responsibilities Consolidating supervisor
Pillar 1 - Modelling Pillar 1 - Permission to go IRB and/or AMA Pillar 3 Coordination role
Host supervisors
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Subsidiaries other than credit institutions & investment firms not submitted at solo level
CRD - Level of application
CreditInstitution
Investment Firm
Ultimate Parent Credit Institution
Holding CompanyHolding Company
Diversified Financial GroupDiversified Financial Group
Parent CI
CreditInstitution
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Pillar 2Capital Adequacy
Assessment
Bank’s -Driven
PILLAR 1MINIMUM REQUIRED CAPITAL
SUPERVISOR - DRIVEN
Pillar 3
DisclosureMarket - Driven
SUPERVISOR’S REQ.
ApproachesQuantitative requirement Qualitative requirementCalculation FormulaPermission to go :
AIRBAAMA
BANKs CHOICE
Choice of approachesModelling : PD
LGD EAD
VARData UseSystems Policy
CRD - 3 Pillars - Key drivers
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PILLAR 2CAPITAL ADEQUACY ASSESSMENT
BANK’s -DRIVEN
ICAAPProduce ICAAP number and assessment
SREPProduce conclusions
Dialogue
Challenge
ICAAPIteration
Pillar 1 Minimum Required
Capital
Supervisor - Driven
Pillar 3Disclosure
Market - Driven
CRD - 3 Pillars - Key drivers
Supervisory measures
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Pillar 1 Minimum Required
Capital
Supervisor - Driven
PILLAR 3DISCLOSURE
MARKET -DRIVEN
Pillar 2Capital Adequacy
AssessmentBank’s - Driven
Supervisory Disclosures
CRD requirements
Banking industry pressureMarket pressure
=> Supervisors Policy
Institution Disclosures
Minimum List CRD= Pillar 1
Market pressure
=> Bank’s Policy
CRD - 3 Pillars - Key drivers
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CRD - 3 Pillars - Link between Pillars
P1 Min.Req.Capital P2 Adequate Capital Prudential Own funds
Only CR, OR & MR
Supervisory requirements
Supervisory calculation formula
Op
erat
e ab
ove
MR
C
Cap
ital
Mgt
Str
ateg
yAll risks
Bank’s requirements
ICAAP = Bank’s own process + own calculation formula
SREP = Supervisory challenge
= Numerator P1
Supervisory filters
Accountancy figureamended by prudential filters
< <
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CRD - 3 PillarsSome banks use economic capital
Rating agencies figuresRating AA
P1 Min.Req.Capital P2 Adequate Capital Prudential Own funds
Only CR, OR & MR
Supervisory requirements
Supervisory calculation formula
Op
erat
e ab
ove
MR
C
Cap
ital
Mgt
Str
ateg
yAll risks
Bank’s requirements
ICAAP = Bank’s own process + own calculation formula
SREP = Supervisory challenge
= Numerator P1
Supervisory filters
Accountancy figureamended by prudential filters
< <
ECAP = ICAAP
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CRD - 3 Pillars - Reporting
PILLAR 1 Only credit, operational, market risks Minimum Required Capital
Supervisor - Driven
PILLAR 2 All risks Capital Adequacy Assessment Bank’s - Driven
PILLAR 3 Bank’s disclosures Pillar 1 Market - Driven
PILLAR 3 Supervisors disclosures CRD implementation Market - Driven
CoR
epD
ialo
gue
Pu
bli c
a ti o
ns
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CRD - 3 Pillars - Reporting
PILLAR 1 Only credit, operational, market risks Minimum Required Capital
Supervisor - Driven
PILLAR 2 All risks Capital Adequacy Assessment Bank’s - Driven
PILLAR 3 Bank’s disclosures Pillar 1 Market - Driven
PILLAR 3 Supervisors disclosures CRD implementation Market - Driven
CoR
epD
ialo
gue
Pu
bli c
a ti o
ns
Fin
anci
al S
tate
men
ts
Fin
anci
al R
epor
tin
g (F
inR
ep)
Oth
er R
epor
tin
gs
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AgendaAgenda
1. Bank’s objectives and constraints
2. Fortis Bank overall targets
3. Relationship between the bank and its customer
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FORTIS BANK OVERALL TARGET
FROM IMPLEMENTATION DATE, i.e. 1 January 2008,START WITH THE MOST ADVANCED APPROACHES
Pillar 1 Credit risk AIRBAPillar 1 Operational risk AMAPillar 1 Market risk VaR (unchanged)Pillar 2 All risks VaRPillar 3 Disclosures Market high standards
• GOALS Have in use an embedded high-performance risk management
Keep in line with the most advanced peer banks aiming our competitive position Reconcile the management tools and the supervisory constraints
Ensure convergence between regulatory and economic capital
Minimise the P1 Minimum Required Capital and P2 Adequate Capital Accelerate cross-border integration
Use Basel Program as a leverage
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FORTIS BANK OVERALL TARGET
• ACT AS ONE COMPANY One cross-border bank, based on business lines
FB-wide consistent choices of Basel approaches Models developed centrally or under central supervision Centralised data repositories Centralised calculation of Risk Weighted Assets
& Capital requirements Centralised solvency reporting and market disclosures Consolidated supervisory review
Top-down : From consolidated level to local level
• Customer is the cornerstone of our business
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FORTIS BANK OVERALL TARGET
• P1 - CREDIT RISK = Advanced Internal Ratings Based Approach Materiality assessment performed on consolidated level and consistent top-down Outstandings to customers can be linked to B/L and legal entity One single FB-wide rating by customer Central repository and central computing of risk weighted assets and minimum required capital Economic capital computed bottom-up and using as inputs the P1 data
• P1 - OPERATIONAL RISK = Advanced Measurement Approach “AMA on a unified basis for parent and subsidiaries” (CRD art. 105)
FB-wide single policy & framework, consistently implemented “Qualifying criteria met by the parent and subsidiaries considered together” (CRD art 105) AMA applied at top consolidated level and based on business lines Central computing of capital requirements
and Risk sensitive apportionment of the capital to the legal entities Same methodology for computing economic and regulatory capital
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Pillar 2ICAAP = ECAP = ForCap
Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP)
=
Economic Capital (ECAP)
=
Internal management tool (ForCap)
• Integrated risk management and organisation based on Business Lines.
• One single approach, one single management tool, one single capital figure One single tool ForCAp and one single figure ForCap incorporates the full diversification within and between risk types Bottom-up computing
• Supervisory challenging In line with principles 1 (ICAAP) & 2 (SREP) of Pillar 2 Approach, methodologies and models fully documented SREP conclusions => Dialogue => ICAAP iteration
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Pillar 2ICAAP = ECAP = ForCap
Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP)
=
Economic Capital (ECAP)
=
Internal management tool (ForCap)
• UNEXPECTED LOSS Bank must hold capital to ensure it will remain solvent even if it experiences an
unusually adverse outcome inits activities and thereby suffers a large loss. This amount is directly proportional to the amount of risk to which the bank is exposed.
Economic capital is the appropriate tool ; Not the Pillar 1 Minimum Required Capital The cost of capital is one of the element to be covered by the margins
• EXPECTED LOSS Bank suffers “expected losses” linked to the current operating of their activities. Those “expected losses” are supported by the P/L Expected losses in one of the element to be covered by the margins.
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Pillars 1 & 2Consistency
P1 Min Req Capital
Supervisory formula
P1 calculator
Internal Ecap method
ForCap calculator
P2 Adequate Capital
Other P2 risks
Model approvedReady for use
In use
System ready
Ready for sourcing Value at default
Central DWH sourced= Pillar 1
Dwh & calculator ready
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AgendaAgenda
1. Bank’s objectives and constraints
2. Fortis Bank overall targets
3. Relationship between the bank and its customer
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Credit Risk: Pillar 1 Advanced IRB ApproachRisk components
• Risk components are all based on bank’s own estimates Probability of Default: is the assessment of the likelihood of
default of the borrower over one year.Expressed as a %, and counterparty specific.(PD)
Loss Given Default: is the assessment of the loss incurred on a facility at default of a counterparty. Expressed as a %, and transaction specific.(LGD)
Exposure at Default: expected gross exposure of the facility upon default of the obligor. Expressed in amounts, and transaction specific.(EAD)
Maturity: the effective maturity of a credit facility with a maximum of 5 years (M)
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DialogueCustomer
CustomerInformation
Corporate Relation
Inputs calculator
Credit Risk: Risk drivers
Qualitative Quantitative
Externaldata provider
Internaldata
Flashing lights
CalculatedPD - LGD - EAD - M
ModelsOverrideReview
FinalPD - LGD -EAD - M
25Bâle 2 : La vision du banquier - 20 octobre 2005