財務風險管理CH12課件

1、Basel I, Basel II, and Solvency IIChapter 12 1History of Bank RegulationPre-19881988: BIS Accord (Basel I)1996: Amendment to BIS Accord1999: Basel II first proposed2The Model used by Regulators (Figure 12.1, page 272) 3Pre-1988Banks were regulated using balance sheet measures such as the ratio of ca

2、pital to assetsDefinitions and required ratios varied from country to countryEnforcement of regulations varied from country to countryBank leverage increased in 1980sOff-balance sheet derivatives trading increasedLDC debt was a major problem Basel Committee on Bank Supervision set up41988: BIS Accor

3、d (page 259)The assets:capital ratio must be less than 20. Assets includes off-balance sheet items that are direct credit substitutes such as letters of credit and guaranteesCooke Ratio: Capital must be 8% of risk weighted amount. At least 50% of capital must be Tier 1.5Risk-Weighted CapitalA risk w

4、eight is applied to each on-balance- sheet asset according to its risk (e.g. 0% to cash and govt bonds; 20% to claims on OECD banks; 50% to residential mortgages; 100% to corporate loans, corporate bonds, etc.)For each off-balance-sheet item we first calculate a credit equivalent amount and then app

5、ly a risk weight Risk weighted amount (RWA) consists ofsum of risk weight times asset amount for on-balance sheet itemsSum of risk weight times credit equivalent amount for off-balance sheet items7Credit Equivalent AmountThe credit equivalent amount is calculated as the current replacement cost (if

6、positive) plus an add on factorThe add on amount varies from instrument to instrument (e.g. 0.5% for a 1-5 year interest rate swap; 5.0% for a 1-5 year foreign currency swap)8The MathOn-balance sheet items: principal times risk weightOff-balance sheet items: credit equivalent amount times risk weigh

7、tFor a derivative Cj = max(Vj,0) + ajLj where Vj is value, Lj is principal and aj is add-on factor10G-30 Policy Recommendations(263)Influential publication from derivatives dealers, end users, academics, accountants, and lawyers20 recommendations published in 1993 11Netting (265)Netting refers to a

8、clause in derivatives Master Agreements (ISDA), which states that if a company defaults on one transaction it must default on all transactionsIn 1995 the 1988 accord was modified to allow banks to reduce their credit equivalent totals when bilateral netting agreements were in place12Netting Calculat

9、ions continuedCredit equivalent amount modified fromTo141996 Amendment (267)Implemented in 1998Requires banks to measure and hold capital for market risk for all instruments in the trading book including those off balance sheet (This is in addition to the BIS Accord credit risk capital)15Basel IIImp

10、lemented in 2007 Three pillarsNew minimum capital requirements for credit and operational risk Supervisory review: more thorough and uniformMarket discipline: more disclosure17New Capital RequirementsRisk weights based on either external credit rating (standardized approach) or a banks own internal

11、credit ratings (IRB approach)Recognition of credit risk mitigantsSeparate capital charge for operational risk18USA vs European ImplementationIn US Basel II applies only to large international banksSmall regional banks required to implement “Basel 1A (similar to Basel I), rather than Basel IIEuropean

12、 Union requires Basel II to be implemented by securities companies as well as all banks19New Capital RequirementsStandardized Approach, Table 12.4, page 270Bank and corporations treated similarly (unlike Basel I) RatingAAA to AA-A+ to A-BBB+ to BBB-BB+ to BB-B+ to B-Below B-UnratedCountry0%20%50%100

13、%100%150%100%Banks20%50%50%100%100%150%50%Corporates20%50%100%100%150%150%100%20New Capital RequirementsIRB Approach for corporate, banks and sovereign exposuresBasel II provides a formula for translating PD (probability of default), LGD (loss given default), EAD (exposure at default), and M (effect

14、ive maturity) into a risk weightUnder the Advanced IRB approach banks estimate PD, LGD, EAD, and MUnder the Foundation IRB approach banks estimate only PD and the Basel II guidelines determine the other variables for the formula21Key Model (Gaussian Copula)The 99.9% worst case default rate is22Depen

15、dence of r on PDFor corporate, sovereign and bank exposure(For small firms r is reduced) PD0.1%0.5%1.0%1.5%2.0%WCDR3.4%9.8%14.0%16.9%19.0%24Capital Requirements 25Retail Exposures27Credit Risk MitigantsCredit risk mitigants (CRMs) include collateral, guarantees, netting, the use of credit derivative

16、s, etcThe benefits of CRMs increase as a bank moves from the standardized approach to the foundation IRB approach to the advanced IRB approach 28Adjustments for CollateralTwo approachesSimple approach: risk weight of counterparty replaced by risk weight of collateralComprehensive approach: exposure

17、adjusted upwards to allow to possible increases; value of collateral adjusted downward to allow for possible decreases; new exposure equals excess of adjusted exposure over adjusted collateral; counterparty risk weight applied to the new exposure29GuaranteesTraditionally the Basel Committee has used

18、 the credit substitution approach (where the credit rating of the guarantor is substituted for that of the borrower)However this overstates the credit risk because both the guarantor and the borrower must default for money to be lostAlternative proposed by Basel Committee: capital equals the capital

19、 required without the guarantee multiplied by 0.15+160PDg where PDg is probability of default of guarantor30Operational Risk CapitalBasic Indicator Approach: 15% of gross incomeStandardized Approach: different multiplicative factor for gross income arising from each business lineAdvanced Measurement

20、 Approach: assess 99.9% worst case loss over one year.31Supervisory Review Changes Similar amount of thoroughness in different countriesLocal regulators can adjust parameters to suit local conditionsImportance of early intervention stressed32Market DisciplineBanks will be required to disclose Scope and application of Basel frameworkNature of capital heldRegulatory capital requirementsNature of institutions risk exposures33Solvency IISimilar three pillars to Basel IIPillar I specifies the minimum capital requirement (MCR) and solvency capital requirement (SCR)If capital falls b