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Basel II revisited

New rules for the banking industry are taking shape

The US subprime mortgage-induced global credit and liquidity crisis gave rise to a multitude of new regulations for banks, revising the Basel II framework that was only just being introduced. While not all new regulatory requirements are settled yet, the following have impacts especially on large, internationally active banks:

  • Enhancements to the Basel II framework, with stricter rules for securitisation under pillar 1, many aspects under pillar 2, starting with risk governance, and also better disclosure under pillar 3
  • Revisions to the Basel II market risk framework: the value at risk (VaR) for the trading book is supplemented with an incremental risk capital charge and stress VaR requirements
  • Principles for sound stress testing: to complement and challenge risk models, including reverse stress tests analysing scenarios that would make a business model unviable
  • Strengthening the resilience of the banking sector: available capital to absorb losses should consist of tier 1 predominantly, higher capital requirements for derivatives, introduction of a leverage ratio to limit excessive leverage and promoting build up of capital buffers over the cycle, including forward looking provisioning
  • International framework for liquidity risk measurement, standards and monitoring: this includes a 30-day liquidity coverage requirement and incentives for banks for stable longer term funding.

We offer you solutions for many of the underlying issues, many of which centre around credit risk: from internal ratings models to expected loss frameworks and portfolio economic capital, efficient end-to-end credit processes or complete risk governance, scenario based stress testing and validation of risk measurement tools. We also cover all other types of risks in financial institutions, be it market, liquidity, operational or reputation and strategy.

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