Basel III Standards, Risk Assessment, and Stress Testing
During this course, a variety of teaching methods will be used, including slides, case studies, and detailed Excel spreadsheets, all of which will be conducted in a workshop environment.
By the end of the course, participants will be able to:
- Deepen their understanding of the key elements of Basel III framework.
- Understand the fundamentals of credit, market, and operational risk assessment.
- Reinforce the importance of stress testing as an integral part of risk management.
- Apply analytical skills to identify concentration risks, funding risks, and systemic liquidity risks.
This course is suitable for all professionals in the banking sector, including wealth managers, auditors, product control professionals, and treasury professionals.
Training Program Content
- Understanding the organizational role of the Basel Committee.
- Overview of bank financial data – accounting principles.
- Formation of the balance sheet – types of assets and liabilities.
- Understanding the key elements of profit and loss (P&L) – income statement.
- Reviewing the differences between the banking book and trading book.
- Capital adequacy for financial institutions.
- Differentiating between liquidity and solvency issues.
- Distinguishing between the going concern principle and depositor protection principle.
- Explaining capital adequacy.
- Accounting and regulatory definitions of own funds.
- Hedge filters and Available-for-Sale (AFS) reserves.
- Addressing reputation risk, intangible assets, and deferred tax assets.
- Dealing with securities and off-balance-sheet exposures.
- Addressing Basel market risk.
- Value at Risk (VaR) – logical basis, theory, and calculation methods.
- Limitations of value at risk.
- What about prepayment risks? Do they affect value at risk?
- Market risk weighting.
- Unified methodology.
- Interest rate risks in both banking and trading books.
- Overview of Internal Models Approach (IMA).
- Market risk impact on financial instruments in the trading book.
- Volatility and market pressures.
- Increased risk charges.
- Off-balance-sheet items.
- Operational risks under Basel.
- Defining operational risks introduced by the Basel II framework.
- Operational risk life cycle.
- Basel measurement scales:
- Basic Indicator Approach (BIA).
- Standardized Approach (SA).
- Advanced Measurement Approaches (AMA).
- Risk aggregation under each approach.
- Unauthorized trading – resulting losses.
- Scenario generation – for key performance indicators, management participation in counter-scenario modeling.
- Determining exposure range and severity of “extreme values” and prepayment risks.
- Loss Distribution Approach (LDA) and Scenario-Based Analysis (SBA).
- Applying risk-weighted value (VaR) and operational risk techniques.
- Loss identification – measurement, management, monitoring, and reporting.
- Integrating operational risk management into the framework of enterprise risk management.
- Alternative use of external credit ratings.
- Developing internal monitoring models for assessing corporate loan risks.
- Contrasting advanced and emerging economic methodologies in credit risk assessment.
- Credit concentration risks and large exposures.
- Concentration risks – not sufficiently addressed by pillar one methodologies.
- Brief summary of the Supervisory Review and Evaluation Process (SREP).
- Addressing concentration risks within the second pillar of internal capital adequacy assessment process (ICAAP).
- Determining sectoral concentration risks – general principles.
- Determining concentration risks in the Gulf Cooperation Council (GCC) countries.
- Modeling and stress testing risks.
- Explaining techniques for conducting stress tests.
- Retroactive testing using historical returns.
- Scenario generation – stress testing using hypothetical returns.
- Historical sample sizes – are they large enough to cover a wide range of conditions?
- Pitfall of improving risk management