financial risk fitness gmbh

Landsberger Straße 98 - D-80339 Munich
Phone +49 89 46139112 - www.financial-risk-fitness.com

Bridging the Gap between Regulatory and Economic Capital

This two day training course aims to provide an overview on modern capital management practices in international banks drawing on modern capital models compliant with the new international regulatory requirements (Basel III, DFAS and CCAR). The course draws on examples from international banking groups and is based on case studies to be solved in joined sessions between the attendees and the instructor.

Who should attend

  • Capital Management Professionals
  • Corporate Treasurers
  • Risk Managers
  • Internal controllers
  • Management Accountants
  • Financial Accountants
  • Internal &external auditors
Day One

The Baseline Concepts - What is Capital?: 9.00 – 10:00

  • The Basel 1 & Basel 2/3 Definitions
  • The Accounting View
  • The Economic Perspective
  • Key Capital Ratios
  • A Rating Agency´s Perspective
  • Possible Changes in light of the Global Crisis / Regulatory Proposed Changes

Criteria for Optimality: 10:00-10:30

  • How much Capital does a bank need?
    • What is the “Optimal” Credit Rating congruent with:
    • Business Strategy
    • Stakeholders´Expectations
    • Competitors´Capitalization
  • Can Capital be used to achieving a competitive Advantage?
    • Examples from Industry Best Practices

Coffee Break: 10:30 - 10:45

The Risk Weighted Assets Conundrum –
Can we Capitalize on the Advanced IRB approach? 10:45- 12:00

  • RWA in Basel I (discussion split by business segments)
  • RWA in Basel II – Standardized approach
  • RWA in Basel II –Foundation IRB Approach
  • RWA in Basel II – Advanced IRB Approach
  • Risk Mitigation in Basel II
  • The Gap to Portfolio Models Capital Management

Lunch Break

Workshop on determining RWA and
Regulatory Capital-Case Study: 13:00 – 15:00

  • Retail (focus on Mortgages)
  • Corporate
  • Financial Institutions
  • Project Finance
  • Municipalities and State Agencies
  • Sovereign Exposures

Break: 15:00 – 15:30

Counterparty Default Risk in Basel II and III: 15:30 – 17:00

  • Credit Default Swaps
  • OTC Derivatives
  • Recognition of Netting, Collateral
  • Best Practices Illustrations
  • Link to Limit Systems
Day Two

Workshop on Risk Mitigation for Capital Management: 9:00 – 10:30

  • Securitization (CDOs)
  • Collateral
  • Netting
  • Tradeoff btw. Basis Risk and Counterpartty Risk – Best Practices

Coffee Break: 10:30 – 10:45

The Gap between Basel III and Economic Capital Management: 10:45 – 12:30

  • Accounting for Default Correlations
  • The Basel II Implied Loss Distribution vs. “Reality”
  • Case Study on the tradeoff imposed by Mitigation (the AIG CDS case)
  • Backtesting PDs and LGDs – the traps
  • Mapping Internal Ratings to Agencies´Ratings: Loss of Bank Specific Information
  • The Pains of Calibration
  • Use of Marginal, Incremental and Component RAROC vs. Return on RC –Examples

Lunch Break: 12:30 – 13:00

Economic Capital Management Practices – Portfolio Models: 13:00 – 15:00

  • Factor Models
  • Credit Metrics
  • CreditRisk+
  • CreditPortfolioView
  • Moody´s KMV
  • Others
  • When to use which model?
  • How to Use the Internal Model for achieving a Capital Advantage?
  • When to Securitize and when to Hedge? – Examples
  • Basic Structured Products and Credit Derivatives -Discussion

Break: 15:00 – 15:30

Achieving Competitive Advantages via Economic Capital Management: 15:30 – 17:00

  • Capital Relief: Basel II vs. the Economic View
  • Maximizing the Customer Franchise Value
  • The False use of Leverage: Examples
  • Liquidity Concerns: HRE/ Depfa Case
  • A View on Diversification and Size:
    • Concerns on Management Complexity
    • Concerns on “Wrong Side Trades”
  • Working with Tier 1 & 2 “Target Ratios” – Traps
  • Group Discussion on Santander Specific Situation

17:00 – 17:30: Outlook and concluding Remarks

  • Trends identified in the Industry
  • Regulatory Changes and Impacts on Bank Capital Management
  • Discussion