Basel III Masterclass
January 30, 2012
Registration Fee: US$995.00 Register Location Instructor
Many classes sell out; we suggest registering at least one week in advance to ensure your seat.
Intermediate Level, 7 CPE Credits
Instructor: Prof. Morton Glantz
Hours: 9:00 am - 5:00 pm; Registration/Breakfast begins at 8:30 am
Location: New York City, Bayard's, One Hanover Square
This intensive, one-day course will review relevant details of Basel III implementation in context with robust credit/portfolio analytics. We employ the most appropriate optimization method to loan portfolios: discrete, dynamic or stochastic optimization, and how methodology improves capital allocation under the new Basel III accords. We also learn to build and use interactive corporate and specialized lending risk rating systems, determine value-at-risk capital allocation and utilize RAROC pricing models.
This program is highly intensive, interactive and encourages participation. Hands-on exercises, deal analysis, examples and case studies reinforce concepts and ensure delegates have a thorough, real-world understanding of the material covered. Participants will use laptops during the workshop. Laptops should have recent versions of Microsoft Excel and Risk Simulator (10-day trial). All attending will receive a copy of the author’s new book (co-authored with Dr. Johnathan Mun) Credit Engineering for Bankers. The book includes a website whereby delegates can download trial versions of Risk Simulator, Real Options SLS, and Basel Modeling Toolkit software. The course does not require more than basic math skills. If Possible, please bring a laptop to class.
Course Outline
Introduction: Review of Basel III
- Differences between Basel II and Basel III
- Tier 1 (core) capital ratio
- Other capital ratios
- Purpose of capital conservation buffer
- Supplemental capital
- Discussion of the countercyclical buffer range
- Regulatory capital ratio
- Resolution of differences between total capital requirements and tier 1 requirement
- Dealing with excessive credit growth and acceleration of the conservation buffer build-up
Overview of Capital Adequacy Assessment Process (ICAAP)
- Regulatory background
- ICAAP overview
- Risk identification and assessment
- Capital planning
- Governance
- Stress and scenario tests
- The ICAAP document
Introduction to Stochastic Risk Analysis: – Key Basel III Implementation Tool
- Adjusting critical assumptions and value drivers
- Understanding an obligor’s financial needs
- Introduction to Monte Carlo computer simulation
- Sensitivity analysis versus stochastic (simulations) projections
- Defining assumptions and forecasts
- Working with confidence levels
- Determining default frequencies
Stochastic Portfolio Optimization and Management of Default Risk
- Optimization procedures
- Continuous optimization procedure
- Results interpretation
- Efficient frontier and advanced optimization settings
- Creating an optimal portfolio mix given allocation of loan exposures across multiple industries
- Illustrative example: portfolio optimization and the effects on portfolio value at risk
- Running static, dynamic, and stochastic optimization with continuous decision variables
- Case analysis: portfolio linked note
- Case analysis: portfolio stochastic optimization: restructuring
Constructing Robust Corporate and Specialized Lending Risk Rating Systems: BIS and Basel III compliant
- Interactive corporate risk rating systems
- Supervisor slotting criteria for specialized lending
- Basic structure ,specialized lending:: project finance, object finance commodity finance Income-producing real estate, high-volatility commercial real estate exposures, and real estate projects under construction
- Determining loss given default (LGD) and loss provisions
Framework for Developing Stochastic Computerized RAROC Pricing Models
- Incorporating computerized risk rating systems into the pricing matrix to determine hurdle ROE, ROA and RAROC (the loan area requires)
- Capital allocation: VaR calculation
- How the facility’s “expected loss frequency” affects the pricing of the facility
- Credit VaR and risk-adjusted performance measurement
- Loan servicing and activity costs
- The “fee-in-lieu-of-balances” calculation
- Determining probabilities loan pricing falls below RAROC mandated by the bank/profit center