Risk Regulation

This course surveys developments in the area of prudential risk regulation with particular emphasis on stress testing as the primary tool of regulation. The practical aspects of conducting CCAR/DFAST tests in the US are covered. The impact of the financial (subprime) crisis of 2007/8 on regulatory reform and the consequences for financial intermediaries are also reviewed.

This course is a component of the Risk Management Professional Certificate.

Prerequisite knowledge:

• Basic MS Excel skills
• Basic probability and statistics
• Basic knowledge of financial securities and markets

CURRICULUM

Day 1

MODULE 1: RISK REGULATION

• Why regulation?
• Systemic Risk
• A brief history of regulation
• Impact of the subprime crisis on regulation

MODULE 2: THE BANK CAPITAL DEBATE

• What is capital?
• Regulatory capital
• Economic capital
• Risk capital: The Merton-Perold approach
• Bankers vs. academics: The role of incentives

MODULE 3: THE BASEL CAPITAL ACCORDS

• Basel I
• 1988 BIS Accord
• Cooke ratio
• 1996 Amendment
• Basel II and Solvency II
• Three pillars of Basel II
• Credit risk capital under Basel II
• Basel 2.5, Basel III and Dodd-Frank

MODULE 4: OVERVIEW OF REGULATORY REGIMES

• US Federal and State regulators
• Financial regulation in the United Kingdom, European Union and Asia
• Regulation in emerging economies

WHAT YOU'LL LEARN

• Describe the rationale for risk regulation
• Explain the motivations for changes to the BIS capital accords from Basel I to Basel III
• Demonstrate knowledge of the most significant trends and reforms in the development of risk regimes in the US, UK, and EU
• Understand the critiques of prudential risk regulation
• Understand the framework of regulatory stress testing in the US and other jurisdictions