The purpose of this workshop is to give you a good understanding of and hands-on experience with the updated Basel rules for capital adequacy and liquidity coverage in banks.
We start with a general introduction to the Basel framework and give an overview of the changes that have been agreed to strengthen resilience of the banking system in the wake of the global financial crisis.
We discuss how the quality, consistency, and transparency of the capital base will be raised and the risk coverage of the capital framework will be strengthened by reducing procyclicality, improving risk management, and by introducing a countercyclical capital buffer and a gross leverage back-stop.
We then give a thorough explanation of how the various types of risk are measured under the Basel III and how these risk measures translate into capital charges. We start with credit risk, explaining how "risk-weighted assets" are calculated using the standardized and the internal rating based approaches (IRB). We carefully explain how internal ratings systems can be built, implemented, stress tested and validated, and we give examples of how capital charges and RWAs are calculated using the "supervisory risk weight function". We will also discuss the changing requirements for making conservative PD and LGD estimates and also the possible changes to the IRB risk weight function. We also discuss the strengthened requirements to measuring spread, counterparty and securitization risks.
Further, we explain and demonstrate how market and operational risk is quantified under the Basel III. We also give a thorough explanation of the new Basel liquidity ratios, illustrated by practical examples.
Finally we explain the requirements under "pillars 2 +3" for stress testing, internal capital assessment and allocation, and risk disclosure, and we discuss the role of supervisors under the supervisory review process. We also discuss the practical challenges of implementing the (new) rules. We look at the possible consequences of Basel III for the banking system.
The workshop will be highly practical with real-life examples, cases and exercises.