Banks Struggle with BCBS 239

There is a very sobering thought about risk management capability and its dependency on information technology units in banks that goes along the following lines: If your data, model and reporting systems are lacking, so will your response to risk management. It's that simple or perhaps not as we shall see with BCBS 239 regulations.

Degenerating Bank's Risk Frameworks

It is a tragic end to the year for risk management in banking where the regulator's fascination with Risk Comparability and Risk Framework Uniformity has reduced banking risk management solutions to nothing more than Risk = BCI x ILM.

Stress Testing Framework

Properly stress testing measures of risk is a complicated activity that few companies have done well.  In this blog we take a look at a complete framework for stress testing.

Addressing Procyclicality

Basel III is actually proving to be quite an ordeal for both the banking community as well as the regulators and some senior members of the regulatory community, both in the UK and the US have made public statements to this fact.

Perhaps one of the biggest issues facing banks with Basel III is how to address Procyclicality, especially if the bank is not running an Advanced IRB credit risk framework. Actually, just obtaining information about the different accepted practices on how to measure Procyclicality within a lending portfolio isn't so easy.

Just the other day I was pointed in the direction of a really good summary and publication on Procyclicality and I wanted to share this link here on the Causal Capital blog.

Why Banks Fail Stress Tests

Perhaps one of the most important risk activities a bank should initiate or enhance over the coming years ahead is stress testing. The stress testing framework, not that risk analysts currently see it as that, is probably going to be the next best thing and the only viable commercially alternative for reducing financial sector fragility other than crippling regulation or bailouts.

  

In this blog we look at why banks have been failing their stress tests. 

Concentration Risk

The quantification of Credit Risk has both normal and stressed modes of measurement, just as all measures of risk do. However, when an analyst attempts to quantify stress in credit portfolios, they should attempt to dimension the concentration risk aspects of their portfolio in line with the stress test they have in mind.

  

In this blog post we look at the stress testing aspects around concentration risk and a presentation has also been attached to the end of this journal which can be downloaded. This presentation investigates standard and accepted practices for measuring concentration risk in credit portfolios.

Too Big to Fail

Whether the recent sovereign debt issues are an instigating factor or not, the too big to fail agenda is back on the table for debate among global regulators.

Basel III is more difficult than first thought

Basel III or the implementation of it is perhaps going to be more difficult to achieve than was first envisaged.

In this relatively short article, we are going to look at some of the problems that are becoming apparent in the Asian banking arena for Basel III regulation.

Caveat Emptor Basel III Conferences and ERM

Caveat Emptor : Basel III Conferences and Enterprise Risk, yes the two are being pushed together.

I find it quite disturbing that there is a whole swag of supposed Operational Risk experts out there from the United States to Australia who are flogging Operational Risk to death.

RMA Speech - How Basel III impacts Counterparty Risk

PRESENTATION [ Fast Download Here ]

An RMA Singapore Chapter speech on the impacts of Basel III for Counterparty Risk has been made available on the Causal Capital blog page here for download, see the link above. The presentation can also be received by contacting the Risk Management Association.

Causal Capital has delivered two counterparty risk speaking events in Singapore this week. This is the second presentation in the set and it builds on the first document that was designed to review the key components of a best practice counterparty risk system.

 
Continue reading to see the key points that are covered in this presentation.

Basel III - Cracks Appear Part 2

In part 1 of the "Basel III cracks are appearing" post which can be accessed by clicking here, we discussed the general misunderstanding on how capital works in Basel III. In this article we are going to look at some of the disparate issues around the new Liquidity Coverage Ratio.

LCR & NSFR

The Liquidity Coverage Ratio or LCR and the Net Stable Funding Ratio or NSFR, work hand-in-hand with capital as a three pronged mechanism and the entire system, can be viewed as an "all encompassing" solution designed to reduce liquidity funding feedback loops. All that aside, there are some broad concerns with the way in which specific elements are being interpreted by national regulators across the globe.

These new aspects of Basel III need careful tweaking to avoid unintended market consequences.

  

Basel III - Cracks Appear Part 1

A few months ago, when I first reviewed the Basel III guidelines, I was relatively positive about the proposal. Sure it is difficult to achieve in places but more or less on the mark. The credit crisis needed a global regulatory response and as heavy handed as it is, Basel III appears on the surface to address the causal factors for the collapse of the markets in 2008.

There are a lot of fears over Basel III which have been voiced by quite a few risk analysts across the planet. These concerns mostly revolve around the following argument that a strict rule is a linear or straight line concept that may not fix the banking system but may dampen economic growth. Yet, if the regulation is not strict enough, it won't be effective.

This interpretation of the ideal behind Basel III is incorrect in my opinion and is driving the banking community to act in a regulatory discordant manner.

In this article we are going to review a couple of concerning eventualities that seemed to have occurred as a response to Basel III. We will look at these concerns from the perspective of the banks and the regulators.

Basel III might be the sun behind the dark clouds for rating agencies

Dark clouds are on the horizon for rating agencies and while many banks have become public enemy number one, the rating agencies aren't off the hook from their hand in the Credit Crisis either.  I am not saying it is curtains for the rating agencies but the world is certainly going to change for them.

The affront on rating agencies

In 2006, the Securities and Exchange Commission passed a Credit Rating Agency reform act which was to stipulate a set of guidelines to determine which rating agencies can be classified as Recognized Statistical Rating Organisations and to guard against conflicts of interest, the act can be found by following this link.  Given the outcome of the Credit Crisis in the backdrop of this act and the role the rating agencies played in masking risk across a whole range of assets, not to mention the credibility of the credit assessment process itself, the act might be deemed as being ineffective. I fair the issue was more likely that the SEC ruling was simply passed into law too late in the day and the Credit Crisis was already underway.

None the less, the US regulators aren't letting go of this.

  

Basel III - Thinking About Liquidity Risk Differently part 1

Market Liquidity and Funding Liquidity are symmetrical aligned intertwined risks which feature heavily in the Basel III accord. However, Liquidity Risk isn't actually new to the accord at all but it is definitely structured in a new way with Basel this time round.

In this blog we are going to look at how Liquidity Risk worked for Basel II and the liquidity issues during the Credit Crisis. We will then follow up with an article on how Basel III approaches Liquidity Risk.

Basel III - Part 2 - What's on the menu

With each financial crisis there will inevitably be a response from the Bank for International Settlements (BIS) but then that is their main charter of work.   In our first article on Basel III, which can be found by clicking here, we discussed what brought us to this place.  I suppose that leads us unerringly to the riposte which is the purpose of this article; where to from here.
 
Continue on reading to see what's on the menu for Basel III.

Basel III - New Insight for an old resolve part 1

To understand why Basel III has been restructured in a new way, we need to take a look at what brought us to this place.

Wrong Way Risk the Global Credit Crisis and Basel III

View Presentation 

The Global Financial Crisis (GFC), The Credit Crisis, call it what you may, although I fair the latter title came first; has been debated across the world.  Governments, industry small and large, banks, actually I am not sure there are many people in society that have not at the very least been impacted by it.  However, what is not common consensus is the cause.

Was Wrong Way Risk a cause of the Credit Crisis?