Basel 2

Course content:

Day 1

Introduction

Ø The bank for international settlement (BIS)

Ø History

Ø The first Basel capital agreements

Ø Standards and regulatory environment

Ø Regulatory & economic capital

Ø Factor weighting of assets

Ø On-balance sheet engagements

Ø Off-balance sheets engagements

Ø Examples of capital requirements

Ø Later modifications

The Basel II/III agreements

Ø Improving risk & asset management

Ø Aligning regulation and economic realities

Ø ‘Sufficient assets’ to offset risk

Ø The technical challenges from a bank/regulators’ point of view

Ø How much capital is sufficient capital

Ø The 3 pillar regulatory structure

Ø Comprehensive Basel III review and update

Pillar 1: Minimum capital requirements

Ø Purposes of Basel 2

Ø Scope of application

Ø Credit risk- approaches

Ø The standardized approach to credit risk

Ø Claims on corporates

Ø Interbanking claims

Ø Internal-ratings based approaches to credit risk

Ø Asset classes

Ø Definitions:

· Probability of default

· Maturity

· Exposure at default

· Loss given default

Day 2

Pillar 2: Supervision

Ø Key principles (from regulation to supervision)

Ø Supervisory review process

Pillar 3: Market discipline

Ø Disclosure requirements

Ø Quantitative and qualitative disclosures

Ø Guiding principles

COSO principles on internal control systems for banking organizations

Ø The 13 principles of COSO

Ø The control environment

Ø Risk assessment

Ø Control activities

Ø Monitoring

Ø Types of control breakdowns at financial institutions

Ø Objectives & role of the COSO framework

Ø Integration in a larger risk management system

Ø Cornerstones of an internal controls process

Ø Role of internal audit

Ø Role & responsibilities of external auditors

Day 3

Operational risk

Ø What is operational risk

Ø Legal risk

Ø IT operational risk

Ø Operations and operational risk

Ø How operational risk evolves

Ø Quantification of operational risk

Ø Risk measurement methodologies for operational risk

Ø The Delphi method

Ø Identification & los categories

Approaches to operational risk

Ø Basic indicator approach (BIA)

Ø Standardized approach

Ø Alternative standardized approach

Ø Advanced Measurement approaches

Ø VaR (Value at risk)

Ø Calculating VaR

Ø Scorecards

Ø Stress testing

Ø Use of Monte Carlo simulations

Ø Standard normal distribution

Ø Loss distribution

Ø Self assessment

Day 4

Operational risk management

Ø Key functions for risk managers, Department Heads etc

Ø Sound risk management practices

Ø Operational risk insurance modes

Ø Redefining outsourcing

Ø Outsourcing & Basel 2 compliance

Ø Key risk of outsourcing arrangements

Basel 2 & emerging markets

Ø Key issues

Ø Graduality & flexibility

Ø Homogeneity

Ø Maintaining capitalization

Ø Diversification

Ø Sovereign risk analysis

Ø Bank-Borrowers and capital flows in emerging economies

Implications of and compliance with Basel 2

Ø Proposed changes to Basel 2

Ø Impact of current financial crises

Ø Implementation issues

Ø Securitization guidance under Basel 2

Ø Aligning Basel 2 with Sox-404 requirements

Ø Basel 2 and the board of directors

Ø Organizational changes required (operational risk management office)

Conclusions

Ø Achieving sustainable ROI

Ø Creating CA as a FI within Basel 2

Ø Impact of the financial crises

Ø Role of emerging economies

Ø Translating requirements into company policies

Ø Disclosure requirements