Содержание
- 2. AGENDA: Functions of bank capital; Definitions of Bank Capital, leverage ratio; Structure of BASEL 2 Bank
- 3. Importance of Bank Capital Absorb unanticipated losses and preserve confidence of the FI; Protect uninsured depositors
- 4. Two DEFINITIONS of capital: Economic = difference in the market value of assets and liabilities. Regulatory
- 5. Problem 1
- 6. Why do FI and Regulators are against market value accounting? Difficult to implement, especially for small
- 7. Leverage Ratio Banks are required to meet minimum capital standards on both a simple leverage basis
- 8. CAPITAL ADEQUACY: Basel 2 OBJECTIVES: Development of more internationally uniform prudential standards for the capital required
- 9. BASEL 2 (adopted in 2007) The new accord is based on 3 pillars: Pillar 1: Minimum
- 10. STRUCTURE OF BANK CAPITAL: TIER 1 = Issued and fully paid common stocks (CORE CAPITAL) +
- 11. STRUCTURE OF BANK CAPITAL: TIER 2 (SUPPLEMENTARY CAPITAL) = + Cumulative perpetual preferred stocks + Undisclosed
- 12. MINIMUM RATIOS: LIMITS AND RESTRICTIONS: Tier 2 capital cannot exceed Tier 1 capital (maximum split is
- 13. RISK WEIGHTED ASSETS Total Risk-weighted Assets (TRWA) are determined by multiplying the capital requirements for market
- 14. ESTIMATION OF RISK WEIGHTED ASSETS FOR CREDIT RISK: Standardized approach R.W. ASSETS = R.A.B/S ASSETS +
- 15. Standardised approach (use outside credit rating) On Balance sheet assets are allocated into weighting bands according
- 16. EXAMPLE: Step 1. Calculate Risk-Weighted on-Balance Sheet Assets Each bank assigns its assets to one of
- 17. Step 2. Calculate Credit Equivalents for Off-Balance sheet Items other than OTC Interest Rate and Foreign
- 18. Step 3. Calculate Credit Equivalents for OTC Interest Rate and Foreign Exchange Contracts. Credit conversion factors
- 19. Step 4. Total Risk Weighted assets Risk-Weighted assets for credit risk = 75.5 $ mill +
- 20. Example continued: Calculate the minimum capital ratios if: Tier 1 =9$ mill , Tier 2 =
- 21. Internal rating based approach (foundation and advanced) Banks are allowed to use their internal estimates of
- 22. Foundation and advanced approaches differ primary in terms of inputs that are provided by banks or
- 23. MARKET RISK April 1995, the Basel Committee announced amended proposals for the treatment of market risk.
- 24. The pro-cyclicality of the VaR requirements VaR to “an airbag that works all the time, except
- 25. What is Stressed VaR? The new component of stressed VaR is defined by the highest: Each
- 26. Definition of Operational Risk Risk of loss resulting from: inadequate or failed internal processes people systems
- 27. Basel II Pillar 1 – Operational Risk
- 28. Basic Indicator Approach (BIA) Banks using the BIA must hold capital for operational risk equal to
- 29. A Standardised Approach (SA) In the SA, banks’ activities are divided into eight business lines and
- 30. PILLAR 2: Supervisory Review SRP (Supervisory Review Process) ICAAP (Internal Capital Adequacy Assessment Process) SREP (Supervisory
- 31. Supervisory Review 4 Key Principals of Supervisory Review: Banks are required to have a process for
- 32. The supervisory review process is intended not only to ensure that banks have adequate capital to
- 33. Internal Capital Adequacy Assessment Process Credit Risk Operational Risk Market risk Pillar 1 Model Risk Settlement
- 34. PILLAR 3: Market discipline The goal is to encourage market discipline through the enhanced disclosure by
- 35. Information to disclosure should include: Capital structure and bank’s approach to assess the capital adequacy of
- 36. Problems with Basel 2 revealed by the financial crisis 2007 Supervisory capital ratios were not sufficiently
- 37. BASEL III On 12th of November 2010 the G20 leaders officially endorse the Basel III framework
- 38. Basel III squeezes capital Predominant form of Tier 1 capital should be common equity Common equity
- 39. Conservation buffer The purpose of the conservation buffer is to ensure that banks maintain a buffer
- 40. Countercyclical buffer Countercyclical buffer An extension of conservation buffer Imposed by national authority to curb excessive
- 41. Capital for Systemically Important Banks only Systemically important banks should have loss absorbing capacity beyond the
- 42. BASEL III: Total capital Total Regulatory Capital Ratio = [Total Capital] + [Capital Conservation Buffer] +
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