basel ii and credit risk
TRANSCRIPT
Basel II Compliance&
Credit Risk- Functional and Solution
Overview
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Overview TopicsOverview Topics
4. TCS Risk Management Assets4. TCS Risk Management Assets
3.TCS Basel II Offerings3.TCS Basel II Offerings
1. Introduction to Basel II1. Introduction to Basel II
2. Credit Risk Management Overview- Approaches, Processing steps- Architecture, bBIDS support
2. Credit Risk Management Overview- Approaches, Processing steps- Architecture, bBIDS support
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Basel II - BackgroundBasel II - Background
• First Basel guidelines - 1988
• Amended for Market Risk – 1996
• Destabilizing events in International Financial Markets
– Collapse of East Asian economies
– Barings Bank, Sumitomo Capital, Enron, Mannesmann
• Need for holistic Business Risk Mgmt. especially for
internationally active banks
• Need for better risk cushion, disclosure and monitoring
mechanism
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Basel II - OverviewBasel II - Overview
• Guidelines added for Market and Operational Risk
• Option of using Internal Risk Assessment
• Standardization of supervisory and disclosure norms
Capital ChargeMarket Risk(VAR, Stress)Credit Risk(Std, IRB )Operational Risk(Std, IRB )
Risk Monitoring/Rprtg. Regulatory (std, IRB) Or internal model
SupervisoryProcess(Integrated fully auditedprocess fromData Collectionto reporting)
MarketDiscipline& Disclosure-Qualitative& QuantitativeDisclosure
Regulatory Rules & Reporting
Enterprise Data Management
Pillar 1 Pillar 2 Pillar 3
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Basel II – Scope of ApplicationBasel II – Scope of Application
(1) Basel II accord is to be at this level on a consolidated basis, i.e. up to holding company level
(2), (3), (4): Basel II accord is also applied to all internationally active banks on a stand-alone basis
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Basel II - Architecture ApproachBasel II - Architecture Approach
Centralised vs. de-centralised approach
– Defining Basel II systems & data architecture design
• Key issue - the degree of centralised or de-centralised approach• A high level of consistency and integration will be needed for both
Reported data
Calculated data
Transformed data: PD,
LGD, EAD, EI, PE, LGE
Source data
Group level
Business unit level
Operational Data Store (ODS)
Reporting Applications
Extraction
Data Sources
Extraction, Conversion, Mapping, Cleansing, Transfer
Operational Data Store (ODS)
Data Store
Market data Disclosure
Basel IIRisk Calculators
Basel II Data Mart
Credit Risk
Operational Risk
Market Risk
Management data Analysis
Collateralsystem
Paymentdata
Creditrating
Valuation data
Loss data
Centralised approach
Decentralised approach
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Business Risks
Credit Risk Default Risk / Counterparty Risk Portfolio Risk
− Intrinsic Risk− Concentration Risk
Market Risk Interest Rate Risk Exchange Rate Risk Capital market Risk Commodity Risk Liquidity Risk
Operational Risk Internal /External Fraud Employ. Practices & safety Clients, Prod & Biz Practices Physical damage to Assets Business disruption & Systems Failure Execution, Delivery & Process Management
Type of Risks in BFSType of Risks in BFS
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Basel II - Regulatory Capital Basel II - Regulatory Capital
Eligible capital = Tier 1 + Tier 2+ Tire IIITier 1: Shareholders’ equity + disclosed reserves/ retained earningsTier 2: Supplementary capital (e.g. undisclosed reserves, provisions)Tier 3: Short Term Sub-ordinate Debt (Only for Market Risk)
Total Capital
Market RiskThe risk of losses in trading positions when prices move adverselyForeign Exchange and Commodities open positions
Credit Risk The risk of loss arising from default by a creditor or counterparty
Operational RiskThe risk of loss resulting from inadequate or failed internal processes, people and systems or from external events
Total capital
Credit risk + Market risk + Operational risk= Bank’s capital ratio (minimum 8%)
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Overview TopicsOverview Topics
4. TCS Risk Management Assets4. TCS Risk Management Assets
3.TCS Basel II Offerings3.TCS Basel II Offerings
1. Introduction to Basel II1. Introduction to Basel II
2. Credit Risk Management Overview- Approaches, Processing steps- Architecture, bBIDS support
2. Credit Risk Management Overview- Approaches, Processing steps- Architecture, bBIDS support
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Credit Risk ManagementCredit Risk Management
Approaches• Standardized• Internal Rating Based
− Foundation− Advanced
Data Requirements• Customer Information, Rating / Scores, Categories• Products, Risk Weights, Categories, A/Cs, Securitization• Exposure / Facility & their Categories, Exposure Rating• Default, Overdue Amounts, Settlement• Adjustments – Collateral, Guaranties, Haircuts, Maturities• Reference – Basel parameters, Currency / Rates, Org Str.
Terminology• PD, LGD, EAD• RWA, K, EL• CCF, Security
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CRM – Comparison of ApproachesCRM – Comparison of Approaches
Standardised Internal ratings-based
Simple Approach
Estimation of risk variables (PD, LGD, EAD)
Collateral, guarantees, credit derivatives, netting
Comprehensive Approach
Foundation Level Advanced level
RW determined through ratings
Internal estimates
Determined by supervisor
Determined by supervisor
Determined by supervisor
No limitation
Approach
HaircutsDetermined by
supervisorDetermined by
supervisorInternally
determined
Basel I
RW prescribed for Asset Classes
Determined by supervisor
Determined by supervisor
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CRM – Basel II Processing StepsCRM – Basel II Processing Steps
• Standardized Approach– Obligor Categorization– Exposure categorization (Retail /Wholesale, Asset
Classification)– Exposure Computation (includes CCF application for NFB prod)– Security Recognition and Application of Adjustments– RWA & Regulatory Capital Calculation
• IRB Approach– Exposure categorization (Retail /Wholesale)– Segmentation of Exposures (for Retail)– Calculation / Recalc of Basic Risk Parameters, Adjustments
(PD, LGD, EAD), both Historical and Estimated
– Calculation of Advanced Risk Parameters(EL, K, RWA, RC)
– Post-Securitization Adjustments
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CRM – Logical Centralized Solution for HOCRM – Logical Centralized Solution for HOHigh-level Process Flow
Data GatheringData Gathering
Pre - ProcessingPre - Processing
Verification & Approval (Optional)
Verification & Approval (Optional)
Data TransmissionData Transmission
Distributed Processing
Central Processing
Data ConsolidationData Consolidation
Regulatory Capital Calculation
Regulatory Capital Calculation
Reporting & AnalysisReporting & Analysis
Logical ArchitectureCentral Components
Distributed Components
Reporting AnalysisReporting Analysis
Results RepositoryResults Repository
Calculation EngineCalculation Engine
Risk Data RepositoryRisk Data Repository
Consolidation ScriptsConsolidation Scripts
Staging AreaStaging Area
Data SourcesData Sources
Extract ScriptsExtract Scripts
Staging AreaStaging Area
ECTL JobsECTL Jobs Risk Data RepositoryRisk Data Repository
FTP / MediaFTP / Media
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CRM – Logical Host (Unit level) SolutionCRM – Logical Host (Unit level) SolutionHigh-level Process Flow
Logical Architecture
Data GatheringData Gathering
Pre - ProcessingPre - Processing
Verification & Approval (Optional)
Verification & Approval (Optional)
Unit level Reporting
Reporting & AnalysisReporting & Analysis
Regulatory Capital Calculation
Regulatory Capital Calculation
Unit level Components
Data SourcesData Sources
Extract ScriptsExtract Scripts
Staging AreaStaging Area
ECTL JobsECTL Jobs Risk Data RepositoryRisk Data Repository
Reports, AnalysisReports, Analysis
Calculation EngineCalculation Engine
Results RepositoryResults Repository
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Overview TopicsOverview Topics
4. TCS Risk Management Assets4. TCS Risk Management Assets
3.TCS Basel II Offerings3.TCS Basel II Offerings
1. Introduction to Basel II1. Introduction to Basel II
2. Risk Management Overview- Approaches, Processing steps- Architecture, bBIDS support
2. Risk Management Overview- Approaches, Processing steps- Architecture, bBIDS support
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Basel II Readiness Blueprint Solution Strategy & Planning Solution Requirements Anal Data Management Strategy Data Preparation Consulting Package evaluation Implementation Plan
End-to-end Risk Management Solution Implementation
Basel II Readiness Blueprint
Implementation & Support System Integration Solution Configuration Integration Testing IPR Support Stress & Back Testing Maintenance
TCS Basel II OfferingsTCS Basel II Offerings
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TCS Risk Management AssetsTCS Risk Management AssetsMarket Risk/ALMMarket Risk/ALM Credit RiskCredit Risk Operations RiskOperations Risk
ALM /Market Risk Framework
• Probability of Default Model for Corporate loans• Credit Appraisal & Monitoring Model• Process Model for Basel II Standardized Approach• IRB Framework for Retail Business Lines• Data Model Solution Template
Operational Risk Framework
Phase 1 Phase 2 Phase 3 Phase 4
B A S E L I I P R O J E C T M A N A G E M E N T
ORGANIZATION
PROCESSES
METHODS
DATA
SYSTEMS
ASSESS AND PLAN SOLUTION CONFIGURATIONUSE TEST
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MONITORAND
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Corporate Governance/Risk Management
Credit Risk
Operational Risk
Market and Other Risks
Capital Planning
Disclosure
Supervisory Review Process
MethodologyMethodology
AQ&Q U E S T I O N SQ U E S T I O N SA N S W E R SA N S W E R S