Bank Capital Adequacy Under Basel III

Fitch Learning

How long?

  • 2 days
  • online

What are the topics?

Fitch Learning


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Who should attend

The course is suitable for risk managers, regulators, internal auditors, bankers and analysts, but is also appropriate for a broader audience who wish to gain insight into capital adequacy and its importance for banks. It is targeted at an intermediate level and assumes only a basic understanding of accounting, financial products and banking functions.

About the course

The overall goal of this two-day course is to provide participants with a general overview of current financial regulation under the Basel Accords. We achieve this by a combination of theory and practice, including case studies from financial institutions, as well as reviewing the actual regulatory documents from the Basel Committee for Banking Supervision (BCBS), the European Banking Authority (EBA), the EU Capital Requirements Regulation (CRR) and Capital Requirements Directive IV (CRD IV).

Key Learning Outcomes:

  • Understand the complex structure of the Basel II and Basel III Accords, as well as the Liquidity Coverage Ratio and Net Stable Funding Ratio
  • Review the definitions of risk-weighted assets for credit, market and operational risks, including the alternative methodologies which can be used to calculate them
  • Describe the mechanics of counterparty credit risk and its implementation via the credit valuation adjustment (CVA)
  • Define economic and regulatory capital, with a focus on its various types including Tier 1, Additional Tier 1, and Tier 2, as well as the capital conservation and countercyclical buffers
  • Explore how liquidity risk is captured by the Liquidity Coverage Ratio and Net Stable Funding Ratio


Financial Regulation

  • Financial regulation: Is it possible?
  • The Bank for International Settlements (BIS)
  • The Basel Committee for Banking Supervision (BCBS)
  • Minimum Capital Requirements
  • Case study: Deutsche Bank (2016)
  • Risk-weighted assets and regulatory capital
  • The three accords: Basel, Basel II, Basel III
  • The three pillars: Pillar I, Pillar II, Pillar III
  • The three risks: Credit, market and operational

The Anatomy of the Basel Accords

  • Guided tour of the BIS, BCBS and the EBA websites
  • Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework (bcbs128).
  • Basel III: A global regulatory framework for more resilient banks and banking systems (bcbs189).
  • Capital Requirements Regulation (575/2013) (CRR)
  • Capital Requirements Directive (2013/36/EU) (CRD)
  • EBA Report: On Credit Valuation Adjustment (CVA) under CRR Article 456(2)
  • Groupwork: A mind map of Basel III

Credit Risk

  • What is credit risk?
  • The three key elements of credit risk:
  • EAD, LGD, PD
  • The three approaches:
  • The standardized approach (SA)
  • The foundation internal ratings based approach (FIRB)
  • The advanced internal ratings based approach (AIRB)
  • Excel lab: Computing FIRB and AIRB ourselves
  • Revisions to the standardised approach for credit risk (d347).

Advanced Credit Risk

  • Specific exposures: Derivatives, contingent exposures, securitization, covered bonds
  • Credit risk mitigation techniques
  • Netting, collateral, credit derivatives
  • Counterparty Credit Risk in Basel III
  • Credit valuation adjustments (CVA)
  • Future developments: Basel IV, FRTB
  • Excel lab: The CVA of an interest rate swap
  • Review of the credit valuation adjustment risk framework (d325).

Market Risk

  • What is market risk?
  • The standardized approach (SA)
  • The internal models approach (IMA)
  • Value at Risk (VaR) and Expected Shortfall (ES)
  • Excel lab: The VaR and ES of General Electric Corp.
  • Stressed VaR and incremental risk charge
  • Minimum capital requirements for market risk (d352).
  • Case study: JP Morgan and the London Whale

Operational Risk

  • What is operational risk?
  • Case study: Societe Generale and Jerome Kerviel
  • The basic indicator approach (BIA)
  • The standardized approach (SA)
  • The advanced models approach (AMA)
  • Standardised measurement approach for operational risk (d355).

Regulatory Capital

  • Economic vs. regulatory capital
  • Tier 1, Additional Tier 1 and Tier 2
  • Deductions and contingent capital (CoCo)
  • SIFIs and GSIFIs
  • Leverage ratio under Basel III
  • Case study: Deutsche Bank

Liquidity Risk

  • Video: Bear Stearns & Co.
  • What is liquidity risk?
  • Funding liquidity
  • Asset liquidity
  • The liquidity coverage ratio (LCR)
  • The net stable funding ratio (NSFR)
  • Case study: Royal Bank of Scotland (2016)
  • Liquidity monitoring tools
  • Basel III: The liquidity coverage ratio and liquidity risk monitoring tools (bcbs238).
  • Basel III: The net stable funding ratio (d295).

Bank Capital Adequacy Under Basel III at Fitch Learning

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