Transcript Risk - ACI Croatia

Role of Treasury in Future Banking
Impact of Financial Market Crises and Banking Regulation
on Bank’s Treasury
Equity capital – Quantitative Increase (Basel 2 / 3)
Banks will have to reach 13 – 15% equity level *
Basel II
Basel III
Stress test result
Buffer
Variable Buffer
(Common Equity)
13 %
Fixer Buffer 2,5%
(Common Equity)
10,5%
8%
Tier 2
4%
Tier 2
2%
Additional Tier 1
1.5%
Minimum
Additional Tier 1
2%
Minimum
(Common Equity) 2%
Minimum Tier 1
(Common Equity) 4.5%
* Finance Trainer guess
Liquidity Management - Normal and Stress Case
BALANCE
Operational
liquidity
Structural
liquidity
Liquidity
reserves
today
1
2
3
12 months
> 20 years
Balance = (assets – liabilities aggregated)
incl. new business assumptions
Balance = (assets – liabilities aggregated)
normal case without new deals
Balance = (assets – liabilities aggregated)
stress case –
bank’s individual scenarios
Principles of
Basel 3 / EBA (CEBS) / CRD IV:
1 month minimum liquidity in
stress case → sufficient Liquidity
buffer (reserves) are necessary
Treasury in (Basel 2/3) Regulation Environment
Regulation
framework
Basel 3
Total
bank management
Basel 3 increases
equity requirement for:
Earnings
Optimal RORAC
Open risk
Specific risk
Risk
FX
Customer
business
Interest
Basel 3
Liquidity
Credit
Replacement risk
Treasury
business
→ Risk
→ ALM
→ Sales
→ Trading
 Finance Trainer 2010
TRANSFER RATES
Overview: Changes in Treasury business
TODAY
Basel 3 / CRD IV
Standard
Term Bank Method
No change
Internal Model
10 D VaR 99% x F (3-4)
10 D VaR x F + 10 D Stress VaR x Factor
Standard
Referred to Rating
4% shares cancelled  8%;
Sec./Resec
Internal Model
Included in general risk
add. Incremental Risk (99,9%/1 year);
Sec./Resec. according to table
Term band method
e.g. interest 1% p.a.
add. Bond Equivalent (Credit Value
Adjustment)
Mark to Market approach
MTM + Add On
add. Bond Equivalent (Credit Value
Adjustment)
Expected positive Exposure
(EPE)
VaR 10 D (99%)
Stress VaR 10 D (99%) add. Bond Equivalent
(Credit Value Adjustment)
General risk
Specific risk
Replacement risk
OTC/SFT*
* Security Financing Transaction (e.g. Repos)
Consequences for Treasury Business
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Capital
Requirements
Liquidity
Requirements (LCR
& NSFR)
CVA (Credit Value
Adjustment)
EAD (Exposure at
Default)
Internal model
approach (IMA)
Incremental Risk
Charge (IRC)
Stress VaR
Central Clearing
Party (CCP)
Higher Basis Risks
Financial
Transaction Tax
→ Trading
• Big Trading Books less attractive
• Higher spreads / more documentation
→ Assets and Liabilities Management
• Relocation of main Treasury activities to ALM
• Conservative Banking Book positions
• Professional Banking Book management needed
→ Sales
• More expensive instruments
• Replacement risk becomes very important
→ Risk
• More complex calculations
• More limits / more work
ACI Adjustments (Exams Update)
ACI Dealing Certificate will change:

A new topic basket “Asset & Liability Management” will be added to the
Dealing Certificate syllabus


The existing topic basket “Principles of Risk” will be revamped

The new syllabus will become effective on 1 August 2013
The existing topic basket “Model Code” will be adapted to the newly
written Model Code
ACI Model Code Examination will be available again
The ACI Diploma will be restructured (see graphic next
page).Candidates will have to pass two mandatory units plus one
elective unit in order to be eligible for the ACI Diploma
ACI Operations Certificate - The new FX Best Practices
Operations of the Model Code will be integrated
The New ACI Diploma Structure
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