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FINANCIAL MARKET COURSES

Basel III - Risk Coverage

Trading losses during the financial crisis were larger than expected because risks were not recognized, were not measured accurately, or were understated. For instance, external credit ratings did not accurately reflect the underlying risks and there was undue reliance placed on these ratings by investors. There were also problems with capital calculation methodologies which did not take into account risks such as credit grade migration, loss of liquidity, and tail risks. Other issues included various incentives for regulatory arbitrage, significant procyclicality affects, and weaknesses with OTC trading.

 

This course describes how the Basel Committee on Banking Supervision (BCBS) responded to these issues by updating and expanding risk coverage in a number of different areas.

  • OBJECTIVES

    On completion of this course, you will be able to describe the expanded risk coverage of the Basel framework, detail why the changes were needed, and outline their impact. Specifically, the course describes the changes made with respect to:

    Securitizations

    Trading book treatment

    Counterparty credit risk (CCR)

    Central counterparties (CCPs)

  • COURSE OUTLINE

    Topic 1: Securitization

    Securitization Market Pre-Financial Crisis

    Securitization & the Financial Crisis

    Lessons from the Financial Crisis

    o External Credit Ratings

    o Deficiencies in Capital Requirements

    Changes to Securitization Requirements

    Future Securitization Developments

    Topic 2: Trading Book

    Lessons from the Financial Crisis

    o Banking/Trading Book Boundary

    o Liquidity Assumptions

    o Weaknesses in Risk Measurement

    Default Risk & Migration Risk

    Incremental Risk Charge (IRC)

    Correlation Trading & The Comprehensive Risk Measure (CRM)

    Stressed VaR (SVaR)

    Topic 3: Counterparty Credit Risk (CCR)

    CCR & The Financial Crisis

    Wrong-Way Risk

    o General Wrong Way Risk

    o Specific Wrong Way Risk

    Exposure at Default (EAD)

    o Effective Expected Positive Exposure (EEPE)

    o Alpha

    Credit Value Adjustment (CVA)

    Asset Value Correlation

    Enhancements to the CCR Management Framework

    Topic 4: Central Counterparties (CCPs)

    What are CCPs?

    CCPs & OTC Risk

    CCPs & Basel III

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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