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FINANCIAL MARKET COURSES

Credit Risk Measurement – Capital Calculations

It is critical that banks’ risk exposures are backed by a high quality capital base. But the global financial crisis showed that this was not the case. As a result, significant revisions were made to the Basel capital framework as part of the Basel III reforms.

 

This course describes the two Basel approaches that banks can use to calculate risk-weighted assets (RWAs) for credit risk – Standardized Approach (SA) and Internal Ratings-Based (IRB) approach. The course also discusses the key changes implemented by Basel III in relation to RWA calculations and outlines some of the ongoing issues surrounding RWAs. In addition, the definition of qualifying capital and the associated calculations are described in detail.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Describe the process of calculating risk-weighted assets (RWAs) under both the Standardized Approach (SA) and the Internal Ratings-Based (IRB) approach

    Outline the impact of Basel III on credit risk capital calculations, in particular the amendments relating to capital ratios and qualifying capital

  • COURSE OUTLINE

    Topic 1: Standardized Approach

    Capital Adequacy

    Risk-Weighted Assets (RWAs)

    Calculating RWAs

    o Example

    Adjustments to RWAs

    Topic 2: Internal Ratings-Based (IRB) Approach

    The IRB Approach

    o Foundation IRB (F-IRB)

    o Advanced IRB (A-IRB)

    Calculating RWAs

    o Formula

    o Points to Note

    Topic 3: Basel III & RWAs

    RWAs: From Basel I to Basel III

    Ongoing Issues with RWAs

    Leverage Ratio

    Topic 4: Qualifying Capital

    Capital Adequacy & Qualifying Capital

    Qualifying Capital: Tiering

    Minimum Capital Adequacy

    Qualifying Capital Requirements

    Deductions

    Calculating Qualifying Capital

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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