Introduction 

• The Basel Accounts journey
• Why regulatory capital?
• The evolving Basel Accords – an overview of Basel I, II, & III

The Essence of Risk Management

• Confidence intervals and loss distributions
• The DNA of risk management

Case study: analysing threats of unexpected losses leading to capital erosion

The Basel Framework

• Basel II and III in more detail:
  • Point of non-viability and the new capital ratios
  • Common equity and regulatory adjustments
  • Capital conservation and countercyclical buffers
  • Leverage ratio
  • Liquidity coverage and net stable funding ratios
  • Counterparty credit risk
  • Basel III timeline – phase-in arrangements

Risk Based Capital Management – An Overview

• The evolving risk landscape and its impact on capital
• The different forms of capital and their interrelationship – book, economic and regulatory
• Key elements of available capital – Tiers 1, 2 & 3
• Capital hybrids – an example
• A best practice capital management framework 

Case Study: understanding and analysing the origins of systemic risk  

Risk Adjusted Performance Measurement (RAPM)

• Best practice management of financial resources:
  • Activity Based Costing (ABC)
  • Funds Transfer Pricing (FTP)
  • Risk Based Capital (RBC)
• Using RAPM for decision support and management reporting
• Risk Adjusted Return on Capital (RAROC)
• Implementation issues and transitional arrangements

Case Study: migrating to a risk based (RAPM) performance management system 

The Internal Capital Adequacy Assessment Process (ICAAP)

The ICAAP purpose and key features

• The core principles of a best practice ICAAP
• Supervisory guidance and framework
• The supervisory review and evaluation process (SREP)
• A summary capital position
• Reconciling book, economic and regulatory capital 

Case Study: reviewing and critiquing sample ICAAPs

Enterprise Risk Management (ERM)

• What is ERM and why is it important?
• The benefits of effective ERM
• The importance of Enterprise Risk Management (ERM)
• Understanding the key elements of an effective risk management programme
• Roles and responsibilities within ERM

Case Study: preparing ERM risk diagnostics and reporting to management 

Principal Risk Categories and their Economic Capital Treatment 

Credit Risk

• The standardised and internal ratings-based approaches
• Economic capital-based decision making
• Model risk and potential impact

Market Risk

• Trading book risk management overview
• Trading vs. banking book
• Value-at-Risk (VaR) – its uses and limitations

Interest Rate Risk in the Banking Book (IRRBB)

• Banking book risk management overview
• The effect of yield curves – funding gap and simulation analysis

 Operational Risk

• Basic, standardised and advanced approaches
• Risk quantification under Basel II and its limitations
• Op risk management tools & techniques
• Loss event data

Case Study: assessing the effectiveness of risk management tools & techniques  

Liquidity Risk

• The new (Basel III) liquidity risk rules
• BCBS sound practices
• The liquidity coverage and net stable funding ratios
• Monitoring tools and techniques

Session 10: Corporate Risk Management and Governance

• Corporate governance structures
• BCBS sound practices
• Three lines of defence

Risk Appetite

• Definition and key concerns
• Constructing a loss sensitivity matrix
• The risk appetite setting process and overview

Case study: reviewing and critiquing actual statements of risk appetite from the industry and recommending improvements

Stress Testing and Scenario Analysis

• BCBS sound principles
• A stress testing framework
• Management interventions and their impact
• Stress testing shock waves

Business Risk

• What is business risk?
• Earnings volatility model and method of calculation

Inter-Risk Diversification

• What is inter-risk diversification?
• Calculating and allocating diversification benefits 

A Look into the Future

• Convergence of risk and accounting systems – can it be done?
• Basel III – status of implementation in the industry and emerging issues
• Regulatory reform and the role of the Financial Stability Board (FSB)
• Analysis of regulatory reform and the impact on banks and the likely response
• Recent Basel papers – a directional change in thinking?

Pulling It All Together

• Constructing the ICAAP – an approach
• What content and how much detail
• The challenge process and ensuring acceptance

Case study: constructing a threats / mitigation heat map

END

This course examines the latest tools, techniques and best practices surrounding economic capital calculation and risk-based capital management and how to structure an Internal Capital Adequacy Assessment Process (ICAAP) that maximizes its inherent motivational incentives. It considers the Basel accords, with particular focus on Basel III, and examines the composition and interrelationship between the various types of capital – available (book), regulatory and economic – and explores frameworks for their effective management.

Delegates who complete the course will receive a Certificate with equivalent CPD/CPE credits via email; and for those who require an assessment as a demonstration of competency via training a 20 multiple-choice questions and answers quiz, remotely invigilated with results report and 1 resit, is available at no additional charge when requested at time of reservation.

Highly interactive expert-led intensive presentation, Q&A, group real-time in-depth case studies, regulation and discussion supported by key principles and theory. The virtual learning platform uses safe, industry preferred encrypted Cisco WebEx to optimize live face-to-face visual interaction, discrete chat, for polling and quizzes.

(An invitation via email with access link is included for all participants.)