1 corep & the new capital adequacy framework madrid 2005 basel ii / cad 3
TRANSCRIPT
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COREP&
The New Capital Adequacy Framework
Madrid 2005
BASEL II / CAD 3
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Outline
Why Basel II & CAD 3 Basics of the future directive COREP
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What is it?
Banking Business is a global business
Large amounts of money are exchanged daily
Systemic importance
Need for common rules to avoid a global crisis
=> Basel Committee
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Solvency Ratio
Capital Adequacy Framework Minimum requirements to run a Bank
The most well-known is the: Cooke Ratio
Own Funds / Lending > 8%
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From Basel I to Basel II
Objectives of the new Basel capital accord :
Enhance the sensivity of capital requirements to the degree of risk involved in banks’ positions and activities
Encourage banks to improve their risk measurement and management systems
Increase the role of banking supervisors and the role of market discipline
Constitute a more comprehensive approach to addressing risks the banks are exposed to
Promote safety and soundness in the financial system as well as competitive equality
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II - Structure of the new accord
ThreePillars
Minimum capitalrequirements
Supervisory reviewprocess
Market discipline
Risk weightedassets
Definition ofcapital
Credit riskOperational
riskMarketrisks
Standardised Approach
InternalRatings-based
Approach
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A - Pillar 1
Minimum capital
requirements
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Minimum capital requirements
Credit Risk
Market Risk
Regulatory Capital
Revised Standardized Approach
Standardized Approach
Internal Models Approach
8 %
Foundation IRBA
Advanced IRBA
Operational risk
Basic Indicator Approach
Standardized Approach
Adavanced Measurement Approach
or
or
or
or
+
+
or
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Evolutionnary approachesS
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Capital incentives to move to more advanced approaches
Decreasing capital charges
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Operational risk
In line with the approach to credit risk and market risk, several options are proposed to minimum capital requirements for OpR
Evolutionnary approaches and capital incentives to move to the most advanced approach (AMA)
Basic Indicator Approach (BIA)
The Standardised Approach (TSA)
Advanced Measurement Approach (AMA)
Increasing management standard
Increasing capital charges
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3 - Market risk
Treatment remains unchanged, that is 2 options available :
A standardised approach (for specific risk capital requirements, risk weights will be based on the external assessment of the issuer)
An internal models approach (VaR)
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B - Pillar 2
Supervisory review process
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Supervisory review process
Pillar 2 is intended :
to achieve a level of capital commensurate with a bank’s overall risk profile
to encourage banks to develop and use better risk management techniques in monitoring and managing their risks
Only very limited impact on COREP
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C - Pillar 3
Market discipline
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Market discipline
Pillar 3 is intended to provide investors with reliable and timely information to understand a bank’s risk profile
Enhance role of market participants in encouraging banks to hold adequate levels of capital
Pre-condition for the use of some methodologies (Internal ratings-based approaches, AMA)
Qualitative and quantitative disclosures (information on methodology and key inputs, e.g. explanation of structure of internal rating system and PD, LGD assumptions,…)
Will not be covered by COREP
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COREP
A ratio has been defined
Need to set up a reporting to monitor its application
COREP
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What has been done
An informal initiative, followed by an official working group 9 European Countries, gathered on a voluntary basis to
study the feasibility of a common EU reporting. Its main conclusions were presented to the CEBS on
July 1st. The CEBS agreed that a common reporting was feasible and highly desirable and the COREP Group was set up.
A Draft Framework was designed and included A proposed architecture, with Draft reporting templates attached, and Propose an IT Solutions.
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Proposed architecture
A: Data deemed necessary by all supervisors
B: Country Specific Data(such as Specific Tier 1 instruments)
A+B = Common EU Reporting
C: Local or Sector-wide taxonomies
(Developped under the same standard as the Common Reporting)
D: Country specific requirement outside our scope
Reporting
D4
C1
C2
C3
C4
B 3B 2
B 1
AD2
D3
D1