Capital and liquidity
Unravelling Basel III and Capital Requirements Directive IV
Basel III and CRD IV | Effects of CRD IV | Reasons for choosing Deloitte
Basel III and Capital Requirements Directive (CRD) IV will increase the quantity and quality of capital held by Irish subsidiary banks and investment firms while presenting significant liquidity and leverage challenges for the Irish banking industry.
Understanding and preparing for these challenges will drive the key strategic and operational decisions required to consolidate and build competitive positioning.
Deloitte assists in this focus by drawing upon an experienced local and international network, which is able to address both the strategic and business impacts of CRD IV.
Please contact John McCarroll or David Dalton for information on our services, including the Deloitte Basel III / CRD IV impact assessment and our training workshops.
Basel III and CRD IV
Basel III refers to a set of changes that the Basel Committee on Banking Supervision (Basel Committee or BCBS) is intending to make to its Basel Capital Accord to strengthen the global banking system.
CRD IV stems from the European Union’s implementation of Basel III and will create a single rule book for the European banking industry. Building upon previous Capital Requirements Directives, CRD IV will reduce the discretionary approach by individual member states in the areas of capital requirements and liquidity management. Due for publication in 2012, CRD IV includes increased governance and sanctions for non-compliance which will apply to banks, investment banks, securities firms and most investment firms.
CRD IV proposes to:
- Create new liquidity requirements
- Redefine what constitutes capital
- Amend capital deductions
- Increase the levels of capital required
- Introduce a number of new capital buffers
- Implement new leverage requirements
- Strengthen requirements for management and capitalisation of counterparty credit risk
- Require more detailed public disclosures of regulatory capital bases
Effects of CRD IV
CRD IV poses fundamental challenges to existing business models within the Irish banking industry, raising questions around product strategy, the ‘efficient’ use of capital and liquidity.
As a result the industry is now focused on moving away from a blanket view of capital requirements to a precise one. The following areas should be considered:
| Capital and liquidity management | Business Management |
|---|---|
| Capital management structure | Management information and reporting |
| Liquidity buffer | Product development, cost of funds and transfer pricing |
| Strategy for deleveraging | Business model efficiency |
| Risk Management | Performance management and measurement |
|---|---|
| Credit Value Adjustment | Capital based performance measure |
| Capital optimisation | Evolution of funding mix |
| Risk identification and governance | Return matrix model optimisation |
Response to CRD IV
Clients are responding to CRD IV by setting up and conducting GAP analysis programmes and assessing end-to-end implementation requirements.
Reasons for choosing Deloitte
Deloitte Ireland has a wide network of experience in this area and has engaged with a number of international banks and investment firms in developing successful and innovative solutions. We have a dedicated team with international experience of capital requirement related engagements, Basel II, Basel II.5 and can provide financial service covering accounting risk process, strategy, performance measurement and IT solutions.
The Deloitte Basel III / CRD IV impact assessment will:
- Simulate the risk and capital profile, together with regulatory standards and ratios, over the full Basel III transitional period (2012-2019)
- Run dynamic scenarios to measure the impacts of projected business strategies on minimum regulatory requirements
- Help to compare various strategic options to ensure future Basel III compliance, while also providing a cost benefit analysis
The Deloitte impact assessment will address:
- What your CRD IV situation is compared to peers
- What the impact could be on your business model
- To what extent is your P&L and RoE affected by CRD IV
- Which ratio / CRD IV measure will hurt you the most
- How you can reach CRD IV compliance
- How you converge or diverge to CRD IV compliance over the coming years
- How you can convince the rating agencies of your CRD IV readiness
- How well your strategy will adapt with forthcoming requirements
Please contact John McCarroll or David Dalton for information on a Deloitte Basel III impact assessment, or to enquire about our training workshops on Basel III/CRD IV.
Contact us
David Dalton,
Partner,
Management Consulting
tel: 01 407 4801
John McCarroll,
Partner, Financial Services Advisory
tel: 01 417 2533
