Risk & Capital Management Under Basel III and IFRS 9 This course is presented in London on: 14-17 May 2018 The Banking and Corporate Finance Training Specialist
Course Objectives Participants Will: Understand the traditional as well as the ever changing landscape of Risk & Capital Management Understand the goals of the capital adequacy system Comprehend the changes to capital rules under Basel III Learn the new elements of Basel III & their effect on the different dimensions of risk management. Understand Course the capital Overview adjustments and the new rules of risk weightings. Provide the participants with a thorough knowledge on the Basel III liquidity package and the repercussions of the new liquidity ratios Learn about effective liquidity management and regulations Comprehend the key elements and concepts of IFRS 9 framework and their implications on changes to capital rules under Basel III Understand the impact of IFRS 9 on credit risk Learn how IFRS 9 requirements (expected to replace IAS 39 in January 2018) represent a significant change to how banks and financial service companies report their financial data; especially for customer default and expected losses Provide the participants with an understanding of how expected credit losses models are impacted by macroeconomic scenarios and the new impairment rules of IFRS9 Analyze a value-at-risk approach to asset/liability management for effective risk control. Gain a strong understanding of the IFRS 9 Impairment rule and the forward-looking provisioning methodology; based on expected losses and its subsequent impact on business decisions and risk management functioning Acquire knowledge of new accounting rules and credit risk practices under Basel III & IFRS 9 and their subsequent impact on financial reporting & thereby portfolio allocation decisions as well as risk management techniques Evaluate the classification & measurement techniques of financial assets & instruments under IFRS 9 Understand effective regulatory risk management practices Course Overview Who Should Attend? Board of Directors Senior Bank Management Members Central Bankers (Supervision Department) ALCO Managers Chief Risk Officers Treasury Executives Risk Managers Chief Finance Officers Finance Directors Comptrollers Portfolio Managers Securities Analysts Insurance Executives Pension Fund Managers Pension Fund Trustees Investment Professionals MIS and Operations Executives Budgeting & Planning Executives
Course Content DAY ONE Overview and dynamics of Capital Management Concepts & Definition The role of capital and its significance Key aspects to capital management The development of capital standards for banks Overview of capital allocation in banking Perspectives on Capital; Treasurer s view, Regulators Views, Risk Manager s view & shareholders view Composition of capital- Tier 1, Tier 2 & Tier 3 Regulatory vs. Economic Capital The concepts pf Expected vs. Unexpected Losses The concept of capital efficiency Structure and dynamics of Balance Sheet Capital Allocation Models Concept & Overview Approaches to Optimization Assets volatility Approaches Regulatory Capital Approaches Risk-adjusted Models RAPM- Risk-adjusted Performance Measure RAROA- Risk-adjusted Return on Assets RAROC- Risk-adjusted Return on Capital Earnings Volatility Models EAR- Earnings-at-Risk Model Functioning of Capital Management The four As of Capital Management Adequacy Attribution Allocation Architecture Determining the optimal level & mix of capital Strategic considerations for optimum capital Bank s Insolvency probability Managing the bank s capital adequacy Determining the bank s overall capital plan CASE STUDY: Group discussion on the different variables that should be considered for determining the optimum level of capital and the various models for capital allocation. DAY TWO Liquidity Risk & Management Liquidity Concepts Bank Liquidity Risk Concept & Definition Types of Liquidity Risks The Role of Confidence
Liquidity & Activity Ratios Leverage & Default Issues Contingency Planning Measuring Bank Liquidity The Cash-Flow Approach Large Liability Dependence Core Deposits To Assets Loans & Leases to Assets Loans & Leases to Core Deposits Temporary Investments to Assets Brokered Deposits to Total Deposits Market-to-Book Value Dynamics of Liquidity Management The Formation of Expectations Liquidity Planning Faces of Liability Management Minimizing Deposit Interest Costs Customer Relationships Circumventive Regulatory Restrictions Deposit Rate Ceilings Reserve Requirements Pricing & Methods of Deposit Insurance CASE STUDY: Hypothetical numerical cases on assessing & quantifying the sensitivity of the bank s financial transactions on its cash flows & NII. CASE STUDY: Group discussion on the different variables affecting the bank s liquidity position & the main contributions for illiquidity- A focus on Lehman Brothers rise & fall in 2008 DAY THREE Interest Rate Risk- Overview & Measurement Modeling interest rate risk Deterministic vs. Stochastic models Arbitrage models Equilibrium models Types of Interest Rate Risks Yield Curve Risk Basis Risk Macaulay Duration Modified Duration Core Elements of Duration Convexity Concept Duration gap of Equity Earnings versus Shareholder Value Effective Duration & Effective Convexity Hedging Duration & Convexity Concept of Negative Duration Key Rate Duration
Math of Sensitivity Parameters Measuring Risk Techniques Sensitivity Parameters Simulation Methodologies Rate Shocks Simple Simulation Historical Simulation Monte Carlo Simulation Transfer Pricing as a Tool Value-at-Risk Core Elements of VAR VaR Greeks & Math Correlation & Covariance VaR Methodologies Implementation of VaR CASE STUDY: Hypothetical numerical cases on assessing & quantifying the sensitivity of bonds & other option-embedded fixed-income securities to different parallel & un-parallel changes & twists in the yield curve. Interest Rate & Credit Management Techniques Interest Rate Derivatives Interest Rate Swaps Generic versus complex structures of Swaps Interest Rate Options Interest Rate Futures Forward-Rate Agreements Credit Derivatives Types of Credit Derivatives Credit Default Swaps Total Return Swaps Credit Options; Standard and Exotic Spread Options Credit-Lined Noted (CLNs) Collateralized Bond Obligations (CBOs) Collateralized loan Obligations (CLOs) CASE STUDY: Hypothetical numerical live case on the use of a wide gamut of derivatives instruments & structured products for coping with negative as well as positive duration gaps in a bank s balance sheet. CASE STUDY: Hypothetical numerical live cases on valuing & pricing different traditional & exotic on & off balance-sheet products and their implications on the bank s gap position. CASE STUDY: Hypothetical numerical case on the concept of Bootstrapping & constructing the zero-coupon yield curve.
DAY FOUR From Basel II to Basel III Basel III Structure & main elements Chronology of phasing-in the new Basel 3 standards Basel III Pillars & new limits Risk-based Capital Measures Basel III new capital requirements Redefining Capital Capital Ratios Capital Buffers Components of Capital New concepts of Common Equity & Tier 1 capital Basel 3 Treatment limits for Tier 1 and Tier 2 & 3 Capital ratios Allowable Capital Deductions Basel 3 treatment for hybrid investments Basel 3 Standards for Minority interests Unconsolidated Financial Institutions Deferred Tax Assets Mortgage servicing-rights Total risk-based capital Capital Conservation ratio & Countercyclical ratio Non-risk-based measures Leverage ratio Concept of Systematic Banks Timing & Transitional Arrangements Basel III Liquidity Kit Definitions and scope Objectives of Basel 3 Liquidity package New liquidity standards Liquidity coverage ratio- LCR Appropriate Asset Levels for LCR Inclusion Net Stable Funding Ratio Timing & Transitional Arrangements Interfacing between Basel III & Risk Management Changing rules of the game Modus operandi of Basel III Basel III Mechanics for credit risk Basel III Mechanics for liquidity risk Basel III Mechanics for Ops Risk IFRS 9: Overview & Concepts Definitions and scope Background & Objectives Effective date & transition Key differences between IFRS 9 and old IAS 39 rules New standards for the accounting of financial standards Convergence with U.S. GAAP Phases of IFRS 9 Standard Classification & Measurement of financial assets & liabilities Impairment
Hedge Accounting Dynamics & Modus Operandi of IFRS 9 Measurements of Financial Assets Amortized Cost Models; Hold-to-Collect Business Model and SPPI Contractual Cash Flow Characteristics Test - Payments of Principal & Interest Fair Value through other Comprehensive Income (FVOCI) for debt instruments and equity investments. Fair Value through Profit & Loss (FVTPL) Implications of the new accounting rules on financial reporting, thereby on business decisions as well as capital and risk management Overview of the new Impairment model General Impairment Model Recognition of Impairment- 12-month ECL (Expected Credit Losses) Lifetime Expected Credit Losses Hedge Accounting Qualifying criteria & Effectiveness testing Hedged Items Aggregate Exposures Hedging Instruments Derivatives & Hybrid contracts Expected Credit Loss Module (ECL) PD (probability of default) LGD (Loss given default) EAD (Exposure at default) CCF (Credit Conversion Factor) Bridging the gap between IFRS 9 standard and ALM activities Impact of IFRS 9 ECL on balance sheet management Credit Adjusted ALM CASE STUDY: Group discussion on the challenges facing banks & financial institutions, struggling for the implementation of IFRS 9, prior to the final date of January 2018. CASE STUDY: Group discussion on the differences between the new IFRS 9 and the old IAS 39; and the eventual impact on business and financial decisions as well as risk dimensions. 09:30-17:00 London Standard Price: 2,575 + VAT Membership Price: 2,060 + VAT Delivering this course in-house for you to a number of participants could be very cost effective.