Practice — From Basel to Real-World Crises

Learning objectives

•   Understand the core architecture of banking regulation, including Basel frameworks and capital requirements
•   Get familiar with the recent regulatory changes and trends

Topics

•   From Accounting to Capital Transition from accounting measures to capital-based regulation and solvency requirements
•   Basel Evolution Overview of the Basel framework and its adaptation to crises and structural changes in banking
•   Main Recent Changes Key recent regulatory developments and their practical implications for banks
•   Deregulation / Simplification Debate between regulatory complexity and simplification and its impact on the system

Hands-on practical

• Exploration and interpretation of key supervisory data sources to extract insights on the regulatory environment

Learning objectives

• Master the key drivers of bank solvency, risk, and capital adequacy
•  Analyze how different risks (credit, market, liquidity, operational) translate into regulatory requirements

Topics

• Own funds:
  • Prudential definition
  • Own funds items
  • Eligibility of capital instruments
  • Prudential filters and deductions
• Credit risk:
  • Concept and capital requirements
  • Expected and unexpected credit risk losses: accounting allowances versus capital requirements
  • Structure and fundamental elements of credit risk capital requirements
  • Credit risk mitigation techniques
• Market risk, operational risk and other risks:
  • Concept and capital requirements
  • The output floor
  • Capital requirements for market risk under FRTB
  • The new operational risk capital requirements
  • Liquidation risk and CVA
  • The output floor as a limit to internal models
• Liquidity risk:
  • Concept and requirements
  • The different sides of liquidity risk: liquid assets and structural funding
• Leverage ratio and large exposures:
  • The need for a leverage ratio
  • Calculation of the leverage ratio
  • Concentration risk and large exposures requirements
• Capital buffers:
  • Calculation and risks addressed
  • Why are they different from other requirements?
  • The maximum distributable amount
• Pillar 2 and Pillar 3:
  • Overview of capital requirements: the stacking order
  • The role of Pillar 2 and the so-called “Pillar 2 risks”
  • Pillar 3 and market discipline
  • The stacking order, or how to put the pieces together

Hands-on practical

• Calculate prudential own funds, capital requirements, and the maximum distributable amount; calculate the interaction between leverage and capital requirements
  

Learning objectives

•   Develop the ability to interpret regulatory information from a market and strategic perspective
•   Understand supervisory priorities and their impact on the banking system

Topics

• Market vision
• Peer analysis
• Supervisory priorities

Hands-on practical

• Interpretation of key supervisory and market indicators using publicly available data, with a focus on extracting insights on peer positioning and current supervisory priorities

Learning objectives

• Gain a multidimensional view of solvency, beyond traditional metrics such as CET1
•  Understand how supervision works in practice, including Pillar 2, SREP, and supervisory expectations
• Assess the impact of current regulatory developments and crises on banks and financial stability

Topics

• Beyond CET1: A Polyhedral View of Solvency:
  • Exploration of bank solvency beyond traditional CET1 ratios, incorporating a multidimensional approach based on capital, risk-weighted assets, leverage, market perception and asset quality
  • Introduction to the concept of polyhedral solvency, highlighting the importance of combining regulatory, dynamic and market-based perspectives
• Banking Risks and Overlapping Crises:
  • The role of different banking risks in recent financial crises
  • Focus on real-life failure cases and analysis of how banks operate in environments characterized by multiple, simultaneous, or consecutive crises

Hands-on practical

• Analysis of real-world case studies and key solvency indicators to assess banks’ resilience under different risk scenarios and crisis environments