Basel IV is coming… January 2017

PwC Russia

Agenda

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1. Introduction

2. Revised standardized approach for credit risk

3. Revised standardized approach for counterparty risk

4. Fundamental review of the trading book

5. Even more Basel IV

Regulatory spring: Basel IV unfolding

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“There are a variety of discussion and consultation papers right now that think beyond Basel III.”

“Strong move towards a single rule book and single supervisory mechanism.”

“The Committee is considering ways to improve Basel III in order to achieve simplicity, risk sensitivity and comparability.”

“Basel IV will have an impact on how banks operate and run their risk analyses as well as the data they use and report.”

“The transition from one regime to another can be vague, but the changes are substantial enough to call it Basel IV.”

“Great emphasis will be put in RWA uniformity and transparency.”

The Basel IV framework unfolds

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Focusof Basel III

Focus of Basel IV

Own Funds

Capital Floors(BCBS 306)

StandardizedApproach forCredit Risk(BCBS 307)

Revisions Securitisation

Framework(BCBS 303)

SA-CCR(BCBS 279)

FundamentalReview of theTrading Book(BCBS 305)

RevisionsOpRisk

(BCBS 291)

CVA(BCBS 325)

OwnFundsRequire-ments:

CreditRisk

Securiti-sations

Counter-partyRisk

MarketRisk

Op-Risk

CVA-Risk

Revised Credit Risk Standardised Approach

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BCBS #307

Consultation Paper

Challenges

• Identification/Collection of required risk drivers

• Rising capital requirements – esp. by surcharge on RV for currency incongruities

• Scenario analysis for approximation of additional capital required

• Implicitly increased disclosure requirements

• Allocation of assets to LCR asset classes still requires the use of external ratings

Class of exposure Significant proposed amendments

Company • RW between 60% und 300%, based on revenue and debt

Specialised lending • Creation of a separate category of claims with RW between 120% and 300%

Subordinated debt, equity • RW = 250% for subordinated debt instruments• RW = 300% for exchange-traded equity instruments, further 400%• Threshold (250%/deduction) remains

Institutions • RW between 30% and 300%, based on CET1/NPL-Ratio

Retail business • Introduction of a diversification criterion <0,2% of the portfolio

Secured on real estate • New risk drivers and risk weights (residential and commercial real estates)

Future treatment of exposures to nations, central banks and PSE will be consulted separately.

SA-CCR

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BCBS #279

Final Standard

Goal

Simple implementation & increase of risk sensitivity without increasing complexity1

Additional scope (secured/unsecured; CCP/OTC transactions)2

Use of existing elements and reduction of discretion 3

Considering a supervisory scaling factor (alpha)4

Challenges

• Advanced data availability required for calculation data

– Secured vs. unsecured and CCP vs. OTC transactions

– Information concerning the collateralisation (Margins/Threshold/Collateral)

• Complex add-on determination in six consecutive steps

• Increasing capital requirements

• Interactions with other standards such as large exposures and Leverage Ratio

Showcase: SA-CCR calculation tool

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Fundamental review of the trading book

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BCBS #305

Consultation Paper

Fundamental

review of the

trading book

Revised boundary of trading book and banking book1

Hedging, diversification und more sensitive risk assessment2

Consideration of credit risk3

Introduction of internal models related to Expected Shortfall (ES)4

New standardised approach 5

Challenges

• Parallel calculation of internal models and standardized approach

• Compulsory determination of standardised capital requirements for each trading desk

• Conversion of internal models to the new risk measure and confidence level

• Review and when indicated adjustment of trading book boundary

• Adaptation of internal governance

• Increasing capital requirements

Showcase: FRTB calculation tool

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Even more Basel IV…

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Topic What is the issue?

Capital Floors

Investments in Funds

Securitisations

OpRisk

Large Exposure

Interest Rate Risk in the Banking Book

Disclosure

• Achieve comparable RWA by mandatory calculation of standardised approaches

• Increase capital requirements for funds investments without look-through

• Improve risk sensitivity by reducing reliance on external ratings

• Improve risk sensitivity by focusing on business volume instead of profitability

• Introduction of EU-style large exposure rules in global level

• Introduce pillar I capital requirements for Interest Rate Risk in the Banking Book

• Increased frequency and more formalized disclosure of capital requirements

Challenges

Data require-

mentsCapital

require-ments

Impacton business

modell

Short timeframe

xxx

What are the consequences..?

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Once completed, the Basel IV Impact Matrix will provide an overview of the impact of Basel IV on banking organisations:

People to contact in Russia

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Тел.: +7 (495) 967 6413natalia.gerashchenko@ru.pwc.comБутырский вал, 10125047, Москва, Россия

Наталья ГеращенкоПартнер, Консультационные услуги финансовому сектору, Россия

Вячеслав БитюцкийДиректор, Руководитель практики управления рисками для финансового сектора

Тел.: +7 (495) 967 6000vyacheslav.bityutskiy@ru.pwc.comБутырский вал, 10125047, Москва, Россия