Basel iii Compliance Professionals Association (BiiiCPA) - Part A
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Transcript of Basel iii Compliance Professionals Association (BiiiCPA) - Part A
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Certified Basel iii Professional (CBiiiPro)
Official Prep CoursePart A
Basel iii Compliance Professionals Association (BiiiCPA)
The largest association of Basel iii Professionals in
the world
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Introduction The Basel iii Compliance Professionals
Association (BiiiCPA) is the largest association of Basel III professionals in the world
www.basel-iii-association.com
A business unit of the Basel ii Compliance Professionals Association (BCPA), the largest association of Basel II professionals in the world
www.basel-ii-association.com
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Introduction The association develops and maintains a
compendium of Basel iii related risk and compliance topics
Subject matter experts review and update this body of knowledge
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Introduction Basel iii certificates: Certified Basel iii Professional (CBiiiPro) Certified Pillar 2 Expert - Basel 3 (CP2E-B3) Certified Pillar 3 Expert - Basel 3 (CP3E-B3) Certified Stress Testing Expert - Basel 3
(CSTE-B3) (The CP2E-B3, CP3E-B3, CSTE-B3 are under
development)
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Introduction Certified Basel iii Professional (CBiiiPro): The
exam is online
To find more:
www.basel-iii-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf
www.basel-iii-association.com/Certification_Steps_CBiiiPro.pdf
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Agenda What is Basel iii? The Basel III papers
Was Basel II responsible for the market crisis?
Introduction to the Basel III Amendments
The Financial Stability Board (FSB), the G20 and the Basel III framework
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Agenda “Principles for enhancing corporate
governance” BIS, October 2010
The key areas where the Basel Committee believes the greatest focus is necessary:
1. Board practices 2. Senior management 3. Risk management and internal controls
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Agenda 4. Compensation 5. Complex or opaque corporate structures 6. Disclosure and transparency The role of supervisors
“Sound Practices for the Management and Supervision of Operational Risk”
BIS, December 2010 The 9 principles
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Agenda The Basel III Framework: Important
Amendments Firm Specific Changes System-Wide Systemic Risk-Based Framework
The Quality of Capital The Risk Weighted Assets The Capital Ratio Global Liquidity Standards
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Agenda Capital Conservation Leverage Ratio Countercyclical Capital Buffer Systemically Important Financial Institutions
(SIFIs) Systemically Important Markets and
Infrastructures (SIMIs) Risk Modelling, Stress Testing and Scenario
Analysis
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Agenda Pillar 2 Amendments
“Principles for sound stress testing practices and supervision”
Use of stress testing and integration in risk governance
Stress testing methodologies Scenario selection Principles for sound stress testing practices
and supervision
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Agenda Firm-wide stress testing 15 stress testing principles for banks 6 stress testing principles for supervisors
“Recognising the risk-mitigating impact of insurance in operational risk modelling” BIS, October 2010
Insurance industry supervision Banking supervisors’ assessment processes Approval of insurance contracts
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Agenda Revoking approval for recognising insurance
mitigation in capital Maximum 20% operational risk capital charge
reduction
Modelling methodology Traditional and proposed insurance policies
Criteria for recognising insurance mitigation Partial insurance modelling
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Agenda Understanding Supervisory Colleges “Good practice principles on supervisory
colleges” BIS, October 2010 Principles for both home and host supervisors
Principle 1: College objectives Principle 2: College structures Home supervisors, Host supervisors Principle 3: Information sharing Principle 4: Communication channels
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Agenda Principle 5: Collaborative work Principle 6: Interaction with the institution Principle 7: Crisis management Principle 8: Macroprudential work
Case Study: Committee of European Banking Supervisors, Guidelines for the Operational Functioning of Supervisory Colleges: Joint decision on model validation
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Agenda Dodd-Frank Act and Basel III The Capital Requirements Directives (II, III,
IV) and Basel III Solvency II and Basel III
Investment Banking, Retail Banking, Corporate Banking after Basel III
The impact of Basel III Closing remarks
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17
Why the dots … are used? We often use dots … why? An opportunity to understand the importance of
certain words and phrases Example: While it is helpful to draw on extreme values from
historical periods of stress … … sensitivity analysis ***should also include
hypothetical*** extreme values … … to ensure that a wide range of possibilities is
included
There are ***no words that are omitted*** when we use dots
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What is Basel III? According to Jaime Caruana, General
Manager, Bank for International Settlements …
… Basel III is defined as the enhanced Basel II capital framework and …
… the new global micro- and macroprudential banking standards
Basel III is marrying the microprudential and the macroprudential approaches to supervision
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There is no single “Basel III Paper”
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There is no single “Basel III Paper” “What could more broadly be referred to as
Basel III began with the issuance of the revised securitisation and trading book rules in July 2009…
… and then the consultative document in December 2009
The trading book rules will be implemented at the end of 2011 and the new definition of capital and capital requirements in Basel III over a six-year period beginning in January 2013”
Hervé Hannoun, Deputy General Manager, Bank for International Settlements, 22 November 2010
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Basel III: A global regulatory framework for more resilient banks and banking systems “Basel III: A global regulatory framework for
more resilient banks and banking systems” Bank of International Settlements, December
2010 This document, together with the document
… … “Basel III: International framework for
liquidity risk measurement, standards and monitoring”…
… presents the Basel Committee’s reforms to strengthen global capital and liquidity rules …
… with the goal of promoting a more resilient banking sector
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Basel III: A global regulatory framework for more resilient banks and banking systems The ***objective*** of the reforms is to
improve the banking sector’s ability to absorb shocks …
… arising from financial and economic stress, whatever the source …
… thus reducing the risk of spillover from the financial sector to the real economy
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Basel III: A global regulatory framework for more resilient banks and banking systems Also, to improve risk management and
governance … … as well as strengthen banks’ transparency
and disclosures… … and to strengthen the resolution of
systemically significant cross-border banks
The Basel Committee strengthens the regulatory capital framework …
… building on the three pillars of the Basel II framework
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There is no single “Basel III Paper” Basel III in Europe includes the revisions to
the European Union’s Capital Requirements Directive (CRD)
1. CRD II (higher-quality capital) 2. CRD III (amendments to market-risk and
securitization) 3. CRD IV (capital rules, liquidity, leverage,
single European rulebook in banking)
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Was Basel II responsible for the market crisis? “Forgive me for being very blunt, but I do
NOT believe that Basel II contributed to the recent crisis for two reasons
First, the crisis manifested itself in 2007 on the basis of imbalances that had built up prior to the implementation of Basel II
Second, many countries that have adopted Basel II did so in 2008 or later. The crisis came too soon for Basel II to be credibly held responsible”
Jaime Caruana, General Manager, Bank for International Settlements
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Basel III – When? National implementation for Basel Committee
member countries will begin on 1 January 2013
It will be incremental and is expected to reach the final level on 1 January 2019
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Basel 2 Basel II implementation
At the Pittsburgh Summit, the G20 Leaders reaffirmed their commitment to adopt the Basel II framework…
… with all major G20 financial centres to adopt Basel II by 2011 and the other G20 countries progressing toward adoption
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Basel 2 Most countries have already fully adopted
Basel II… … and the remaining countries are still in the
process
The effects of the financial crisis became manifest in 2007 and built-up prior to the implementation of Basel II
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Introduction to the Basel III Amendment
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A really important question Can I learn today what is going to happen
tomorrow in the financial sector?
Answer: Yes You must monitor the recommendations from
the Financial Stability Board (FSB) … … that will be endorsed by the G-20 … … and then become part of the Basel iii
framework and other laws and regulations
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A really important question The Basel Committee on Banking Supervision
(BCBS) has translated the FSB’s recommendations into …
… a new regulatory capital and liquidity regime
The FSB was established in April 2009 as the successor to the Financial Stability Forum (FSF)
The FSF was founded in 1999 by the G7 Finance Ministers and Central Bank Governors
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The Financial Stability Board (FSB) G7 had commissioned Dr Tietmeyer
(President of the Deutsche Bundesbank) to recommend new structures for enhancing cooperation …
… among the various national and international supervisory bodies and international financial institutions …
… to promote stability in the international financial system
He called for the creation of a Financial Stability Forum
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The Financial Stability Board (FSB) G7 Ministers and Governors endorsed the
creation of the FSF at a meeting in Bonn in February 1999
The FSF would bring together:
1. National authorities responsible for financial stability in significant international financial centres …
… namely treasuries, central banks, and supervisory agencies
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The Financial Stability Board (FSB) 2. Sector-specific international groupings of
regulators and supervisors … … engaged in developing standards and
codes of good practice
International financial institutions … … charged with surveillance of domestic and
international financial systems … … and monitoring and fostering
implementation of standard
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The Financial Stability Board (FSB) 3. Committees of central bank experts
concerned with market infrastructure and functioning
In November 2008 the Leaders of the G20 countries called for a ***larger membership of the FSF***
A broad consensus emerged in the following months towards placing the FSF on stronger institutional ground with an expanded membership
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The Financial Stability Board (FSB) Expanded membership can strengthen the
effectiveness of the FSB as a mechanism … … for national authorities, standard setting
bodies and international financial institutions …
… to address vulnerabilities and … … to develop and implement strong
regulatory, supervisory and other policies in the interest of financial stability
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The Financial Stability Board (FSB) As announced in the G20 Leaders Summit of
April 2009… … the expanded FSF was re-established as
the Financial Stability Board (FSB) with … … a broadened mandate to promote financial
stability
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FSB Charter Objectives of the Financial Stability Board
The Financial Stability Board (FSB) is established to coordinate at the international level …
… the work of national financial authorities and international standard setting bodies (SSBs) in order…
… to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies
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FSB Charter Mandate and tasks of the FSB
(1) As part of its mandate, the FSB will:
(a) Assess vulnerabilities affecting the global financial system …
… and identify and review on a timely and ongoing basis the regulatory, supervisory and related actions needed to address them, and their outcomes
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FSB Charter (b) Promote coordination and information
exchange among authorities responsible for financial stability
(c) Monitor and advise on market developments and their implications for regulatory policy
(d) Advise on and monitor best practice in meeting regulatory standards
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FSB Charter (e) Undertake joint strategic reviews of the
policy development work of the international standard setting bodies …
… to ensure their work is timely, coordinated, focused on priorities and addressing gaps
(f) Set guidelines for and support the establishment of supervisory colleges
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FSB Charter (g) Support contingency planning for cross-
border crisis management … … particularly with respect to systemically
important firms
(h) Collaborate with the International Monetary Fund (IMF) to conduct Early Warning Exercises
(i) Undertake any other tasks agreed by its Members in the course of its activities
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FSB Charter (2) The FSB will promote and help coordinate
the alignment of the activities of the SSBs … … to address any overlaps or gaps and … … clarify demarcations in light of changes in
national and regional regulatory structures … … relating to prudential and systemic risk,
market integrity and investor and consumer protection, infrastructure, as well as accounting and auditing
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List of FSB Members A. Member Jurisdictions Argentina · Central Bank of Argentina Australia · Department of the Treasury · Reserve Bank of Australia Brazil · Ministry of Finance · Central Bank of Brazil · Securities and Exchange Commission of Brazil Canada · Department of Finance · Bank of Canada · Office of the Superintendent of Financial Institutions (OSFI)
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List of FSB Members China · Ministry of Finance · People’s Bank of China · China Banking Regulatory Commission France · Ministry of Economy, Industry and Employment · Bank of France · Autorité des Marchés Financiers (AMF) Germany · Ministry of Finance · Deutsche Bundesbank · Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin) Hong Kong SAR · Hong Kong Monetary Authority
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List of FSB Members India · Ministry of Finance · Reserve Bank of India · Securities and Exchange Board of India Indonesia · Bank Indonesia Italy · Ministry of the Economy and Finance · Bank of Italy · Commissione Nazionale per le Società e la Borsa (CONSOB) Japan · Ministry of Finance · Bank of Japan · Financial Services Agency
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List of FSB Members Korea · Bank of Korea · Financial Services Commission Mexico · Ministry of Finance and Public Credit · Bank of Mexico Netherlands · Ministry of Finance · Netherlands Bank Russia · Ministry of Finance · Central Bank of the Russian Federation · Federal Financial Markets Service
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List of FSB Members Saudi Arabia · Saudi Arabian Monetary Agency Singapore · Monetary Authority of Singapore South Africa · Ministry of Finance Spain · Ministry of Economy and Finance · Bank of Spain Switzerland · Swiss Federal Department of Finance · Swiss National Bank Turkey · Central Bank of the Republic of Turkey
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List of FSB Members United Kingdom · HM Treasury · Bank of England · Financial Services Authority United States · Department of the Treasury · Board of Governors of the Federal Reserve System · Securities and Exchange Commission European Central Bank European Commission
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List of FSB Members B. International Financial Institutions · Bank for International Settlements (BIS) · International Monetary Fund (IMF) · Organisation for Economic Co-operation and Development (OECD) · World Bank
C. International Standard-Setting, Regulatory, Supervisory and Central Bank
Bodies · Basel Committee on Banking Supervision (BCBS) · Committee on Payment and Settlement Systems (CPSS) · Committee on the Global Financial System (CGFS) · International Accounting Standards Board (IASB) · International Association of Insurance Supervisors (IAIS) · International Organization of Securities Commissions (IOSCO)
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The G20
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The G20 The Group of Twenty is a group of Finance
Ministers and Central Bank Governors from 20 economies:
19 countries plus the European Union… … which is represented by the President of
the European Council and by the European Central Bank
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The G20 The G20 promotes open and constructive
discussion among systemically important countries …
… on key issues related to financial and economic policies
The G20 leaders began meeting as a group only in the last few years…
… but the G20 finance ministers have been meeting annually since 1999
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The G20 Those meetings had grown out of meetings
coordinated by the G7… … (the US, Japan, United Kingdom, France,
Germany, Canada and Italy) … … in the years following the 1974 oil shock By the end of the 1990s emerging markets
played an increasingly important part in the global financial system…
… and that needed to be reflected in international economic governance
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The G20 The G20 represents about two thirds of the
world’s population … … and nearly 88% of the world’s economy
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Basel III, the G20 and the FSB 12 November 2010, Seoul, Korea: At the Summit, the G20 Leaders endorsed the
Basel Committee’s new bank capital and liquidity framework (Basel iii) …
… and committed to adopt and fully implement the framework within the agreed time frame
They also endorsed the FSB’s agreed policy framework for reducing the moral hazard posed by Systemically Important Financial Institutions (SIFIs)
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Basel III, the G20 and the FSB Financial institutions that are clearly
systemic in a global context (G-SIFIs) should have …
… ***higher loss-absorbency capacity than the minimum levels agreed in Basel III***
These institutions must also be subject to more intensive co-ordinated supervision and resolution planning …
… to reduce the probability and impact of their failure
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Basel III, the G20 and the FSB Since the onset of this crisis of 2007… … national authorities and international
bodies, with the FSB as a central locus of coordination…
… have advanced a major program of financial reforms, based on clear principles and timetables for implementation …
… that seek to ensure that a crisis on this scale never happens again
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Basel III, the G20 and the FSB A key piece of the global reform agenda has
been addressed with agreement on strengthened bank capital and liquidity standards by the Basel Committee on Banking Supervision (BCBS)…
… and ***its governing body***… … the Group of Governors and Heads of
Supervision (GHOS) The new standards will significantly improve
the quality and quantity of bank capital and enhance the resilience of the banking system
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Basel III, the G20 and the FSB Basel III was approved at the GHOS meeting
on 26 July 2010… … and the calibration of the new minimum
requirements and capital buffers were approved at the GHOS meeting on 12 September 2010
The implementation phase and transitional arrangements were also agreed at the September GHOS meeting
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Basel III, the G20 and the FSB Legislative and regulatory reforms have
progressed in major jurisdictions
These have also provided for the development of ***system-wide oversight*** arrangements…
… such as the US Financial Stability Oversight Council (FSOC) …
… and the EU European Systemic Risk Board (ESRB)
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Basel III, the G20 and the FSB With regulatory requirements on the banking
system tightening … … the need intensifies for more systematic
attention to activities in the ***shadow*** banking sector
This sector continues to play an important role in credit intermediation and liquidity transformation …
… outside the rigorous capital and liquidity regulatory framework that applies to banks
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To continue with Part B of the course: Become a Certified Basel iii Professional
(CBiiiPro)
To learn more: www.basel-iii-association.com/Basel_III_Dista
nce_Learning_Online_Certification.html