basel ii impact on banking processes isaca roundtable 2 november 2009 ronald holsbeeke ra re cia...
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Basel IIImpact on banking processes
ISACA Roundtable 2 November 2009Ronald Holsbeeke RA RE CIA CISA
2 November 2009 ISACA RT Basel II 2
The Basel Capital Accord (1988)
Agreement between G10 banking supervisors on regulatory capital requirements for credit risk
RegulatoryCapital
≥ 8%∑ RWC
2 November 2009 ISACA RT Basel II 3
A Good Start But...
NOT RISK SENSITIVEJust 4 Asset Classes!
Focus only on Credit Risk!
Few Risk Mitigators!
Regulatory Capital ≠ Economic Capital!
2 November 2009 ISACA RT Basel II 4
Basel II: The Revised Framework (2004)
StandardisedApproach
AdvancedMeasurements
Approach
BasicIndicatorApproach
InternalModels
Approach
FoundationInternal Rating
Based Approach
Credit Risk Market Risk Operational Risk
AdvancedInternal Ratings Based Approach
StandardisedApproach
StandardisedApproach
2 November 2009 ISACA RT Basel II 5
Credit Risk Approach under Basel II
Standardised Approach
Standardised Approach
Foundation IRB Approach
Foundation IRB Approach
Advanced IRBApproach
Advanced IRBApproach
Credit Risk
ComplexityComplexity
Capital chargeCapital charge
2 November 2009 ISACA RT Basel II 6
IRB: The Expected Loss Calculation
Expected LossExposure at
Default (EAD)Loss given
default (LGD)Probability ofDefault (PD)= x
RatingRating CustomerSegment
CustomerSegment LimitLimit UtilisationUtilisation Collateral
ValueCollateral
ValueCollateral
TypeCollateral
Type
What is the probability that a counterparty
will default within 1 year?
What is the probability that a counterparty
will default within 1 year?
What will be our exposure at this point in time?
What will be our exposure at this point in time?
How much of this are we likely
to lose?
How much of this are we likely
to lose?
CounterpartySpecific
TransactionSpecific
WorkoutCosts
WorkoutCostsProductProduct
x
2 November 2009 ISACA RT Basel II 7
|
Prospects
Process &
emPowerment
Pricing
(Profit)
Publicity
Policy
rePorting
Portfolio
management
Use of ratings for potential credit customer acceptance purposes
Use of the ratings in delegation, process differentiation and
risk management
Use of Ratings for pricing, specific product offerings and profitability assessments
Straightforward communication to the customer
Use of ratings in defining credit and business policy
and growth strategy
Credit and business books and (semi) annual report, reporting on economic and regulatory capital
General and aggregate provisions, syndication, securitisation,
credit derivatives, ...
M
I
C
R
O
M
A
C
R
O
USE of Basel: 7 P Approach
2 November 2009 ISACA RT Basel II 8
Basel II Process flow
Source systems
Product systems
G/L systems
Rating systems
Collateral systems
Data Warehouse
Reporting tool
(COREP)
Data mapping
Data gathering
& mapping RWAcalculator
2 November 2009 ISACA RT Basel II 9
Basel II: More Than One Pillar!
2 November 2009 ISACA RT Basel II 10
Pillar 2: Internal Capital Adequacy Assessment Process (ICAAP)
Pillar IIICAAP
Economic CapitalMore risk types:
- interest rate- liquidity)
Concentration risk/ country riskDiversification
Enterprise Stress TestingCapital AllocationIntegrated Risk Reporting‘Sound risk management’
2 November 2009 ISACA RT Basel II 11
Pillar 2: Supervisory Review Process
Pillar IISREP
PrinciplesBank’s Own Assessment of Capital AdequacySupervisory Review of Own AssessmentAdditional Capital RequirementsSupervisory Pro-activity
2 November 2009 ISACA RT Basel II 12
Pillar 3: Transparency Increases Market Discipline!
Target group: o investors, stakeholders
Content: o summary of pillar 1 calculationso description of the risk policies and approaches applied
2 November 2009 ISACA RT Basel II 13
Basel II impact on clients
More information required Information should be up to date -> XBRL/SBR
Objective: more risk based relationship management (incl. pricing)