Bank Capital Adequacy Under Basel III and CRD IV & V

The evolution of financial regulation

• Current challenges
  • Brexit impact
  • COVID
• The reason for regulation
• The journey from Basel 1-Basel III
• Improving risk & asset management
• Aligning regulation and economic realities
• The technical challenges from a bank/regulators’ point of view
• How much capital is sufficient capital?
• The 3-pillar regulatory structure
• The impact of COVID – so far
• GSIB’s & Domestic SIBS
• IFRS9
• All change in 2022?

 Session 2: Determining How Much Capital - Internal Capital Adequacy Assessment Process (ICAAP)

• The key principles
• Identifying risks and allocating risk capital
• Pillar One & Pillar Two risks
• Challenge and independent review
• Capital buffers – optional and mandatory
• Regulatory versus economic capital
• Arriving at the agreed CAR
• Practical examples/Case study

 Session 3: Basel in more depth

• Fixing what went wrong
• An overview of the new requirements
• Going concern versus gone concern capital
• CoCo’s – additional capital
• Capital buffers
  • Capital conservation buffer
  • Countercyclical buffer
• CAR, RWA’s and the Leverage Ratio
• Counterparty credit risk
• Banks own buffers
• Total Loss Absorbing Capacity (TLAC)
• Minimum Requirements for own funds and eligible liabilities (MREL)
• Interaction of TLAC & MREL with other requirements/ratios
• Proposed capital floors and the interaction with CAR
• Liquidity risk – much greater focus
• Practical examples/Case study

 Session 4:  How Does Basel impact Banks?

• Stronger balance sheet
• Much better liquidity
• More conservative risk management
• Lower profits
• Less growth potential
• New imperatives
  • De-risking
  • Moving towards fee income
  • Pressure on margins
  • Pressure on costs – particularly in compliance
• Effective strategic capital management now essential
• Practical examples/Case study

 Session 5: Basel & Liquidity

• The ILAAP
• Liquidity Buffers
• Liquidity Coverage Ratio
• Net Stable Funding Ratio
• Required Stable Funding
• Relationship between capital and liquidity
• Liquidity Stress Testing
• Practical examples/Case study

 Session 6: Basel & Credit Risk

• The three options for calculating credit risk.
• Standardised, Foundation IRB, Advanced IRB.
• Understanding PD, EAD & LGD
• Revised Standardised approach
• Overview of Standardised Approach details
• RORAC – a practical example
• Practical examples/Case study

 Session 7: Leverage

• Leverage Ratio
• CAR versus Leverage Ratio
• Reducing Leverage
• ALM Management
• Practical examples/Case study

 Session 8: Market Risk

• Definition
• VAR models
• New Formulae
• Internal models - high level
• Approval required from supervisory authority
• Financial models based on global expected shortfalls, default risk charge and stressed capital add-on
• Practical examples/Case study

 Session 9: Operational Risk

• Definition
• Losses from inadequate or failed internal processes, people and systems or from external events
• Three current conventional methods of calculation
• Heat Maps - Likelihood/Impact
• Revised calculation/process
• Revised change approach
• Based on Business Indicator (BI), marginal coefficient and scaling factor
• Practical examples/Case study

 Session 10: Moving Forward – What Changes are Likely?

• CRD V
• CRR2
• The move towards simplicity
• GSIBS & DSIBS
• Less reliance on modelling
• More disclosure
• More Bail-in measures
• Continued stress test and scenario modelling

 Session 11: Course Wrap Up and Open Forum

A highly successful, long and varied “fast track” career in risk management at Lloyds Bank led him to very senior management at an early age. He was then “head hunted” to join a merchant bank at the main board director level to head the risk management function. He now has over 40 years of experience managing risk in the UK banking and financial services sector.

He has been a freelance risk management training consultant since retiring and is currently an external Master Trainer at both HSBC and Bank of China where he has delivered major projects on a wide range of topics. At HSBC he helped design their global flagship Risk Management Programme for senior middle managers and has delivered this globally for the past 5 years. He has also created and delivered training to a vast range of clients, from global giants to small firms and partnerships. He is an accomplished global trainer and has delivered extensive programmes in the UK, USA, South America, Europe, Africa, Asia and the Middle East.

Our Basel III course trainer is a highly adaptive, hands-on and highly sought-after facilitator who always receives excellent feedback from delegates. He is comfortable training at any level of seniority and experience, from “black belts” to novices. In addition to his risk management specialism, his expertise includes but is not limited to Trade Finance, Regulatory Compliance, FCC & AML and all aspects of Corporate, Private & Retail Banking. He is also a highly experienced soft skills trainer and has completed numerous “train the trainer” assignments.

• Our Basel III training will help you fully understand why regulators continue to impose tight regulation on Banking institutions and the likely way forward on the impact on business models as a result.
• To consider the impact of ESG.
• Explain the purpose, principles, evolution and application of the Basel Capital Adequacy regulations and what is required in terms of: 
• Regulatory capital
• Risk-weighted assets
• Capital Adequacy ratios
• Enable participants to apply the Basel Capital Adequacy rules to specific banks.
• To consider the impact of the recent bank failures – especially Credit Suisse.
• To consider the impact of the proposed 2025 introductions of Revised Standardised Approaches.
• Understand how the institutions of the Basel Committee for Banking Supervision (BCBS) and the European Banking Authority (EBA) operate and what the shape of future European banking regulation will look like.
• Examine how banking risk remains despite regulation and how banks can and do organise their strategy in the context of Basel Capital Adequacy regulations.

• Redcliffe has been established for over 20 years and we are proud of our reputation for delivering excellent Basel training within risk and compliance.
• We are pleased to have been appointed Master Trainers in risk training by two of the world’s largest banks.
• We have also delivered this topic to the IFC, World Bank, ECA’s and a host of small and medium-sized institutions. As such we have a very clear idea of how market players of all sizes are dealing with this ever-changing regulatory framework.
• We do not use academics or a textbook approach. Our course director is a former Chief Risk Officer with considerable hands-on vocational experience. He will share his experiences, both good and bad, to bring the training to life and make it more relevant.
• The course uses lots of practical examples and case studies to illustrate the learning points. We aim to assist delegates to “hit the ground running” following the completion of the workshop.
• This can be a complex subject with some of the requirements appearing to be either challenging or difficult to understand. We will avoid this pitfall by explaining all aspects of the requirements in a simple and easy to comprehend manner, taking time, if necessary, to build delegate understanding in clear stages.
• We are always judged by our results and to date, delegate feedback has always been excellent.

Basel Capital Adequacy is a complex and constantly evolving subject. Our highly interactive and detailed training course provides a comprehensive overview of not only what the past, present, and likely future rules are, and how they apply to different institutions, but also what their underlying purpose is, why they have evolved in the way they have, and how banks can adopt optimal strategies to maximise their profits and minimise risk whilst at the same time staying fully compliant with the spirit and the letter of the rules.

With the benefit of hindsight, global regulation failed to cope with the stresses of the 2008/2009 credit crunch. To correct this weakness, Basel III and its subsequent iterations have ensured that the two areas of greatest bank weakness; loss-absorbing capital and liquidity and risk management are as robust and effective as they need to be to survive a repeat. This, however, comes at a price. If banks are required to hold much more liquidity than they used to, this must be at the expense of earnings. Ditto more loss-absorbing capital and lending.

Basel III has given regulators “superpowers” and they are using them with the full support of an electorate which probably feels we don’t completely trust the banks to self-regulate”. As of now, there has probably never been a time in recent history when banks have been so closely micro-managed. Will this make them safer? Will it make them less profitable?  

The recent and unexpected collapse of Silicon Valley Bank and the even more consequential collapse and rescue of Credit Suisse (a “too big to fail” GSIB) came as an unwelcome reminder that regulation is not fool-proof as new risks and operating environments develop. These collapses will no doubt prompt more changes but at this stage, it is not clear what shape they will take. Watch this space.

Basel III is being adopted almost universally as a benchmark of excellence and is probably a prerequisite for doing business with global banking partners. This is critical for those nations seeking or needing to attract inward capital investment. Without global partners, it is very challenging to raise the funds required domestically or to enjoy access to Trade Finance and international wealth management

We are told there will be no Basel IV (but this could change post Credit Suisse) and there are still plenty of enhancements to Basel III in the pipeline that will probably continue to constrain the ability of banks to take greater risks.

Our Basel training is designed to explain to delegates in practical terms, the impact of Basel III and CRD IV. It demonstrates how it adds value to an organisation despite its flaws and it explains the key challenges posed by its implementation.