Certified Basel iii Professional (CBiiiPro) Objectives: The seminar has been designed to provide with the knowledge and skills needed to understand the new Basel III framework and to work in Basel III Projects. Target Audience: This course is intended for managers and professionals working in Banks, Financial Organizations, Financial Groups and Financial Conglomerates who need to understand the new Basel III requirements, challenges and opportunities. It is also intended for management consultants, vendors, suppliers and service providers working for financial organizations. This course is highly recommended for: - Managers and Professionals involved in Basel III (decision making and implementation) - Risk and Compliance Officers - Auditors - IT Professionals - Strategic Planners - Analysts - Legal Counsels - Process Owners

1. Certified Basel iii Professional
(CBiiiPro)
Official Prep Course
Part A
Basel iii Compliance Professionals
Association (BiiiCPA)
The largest association of Basel iii Professionals in the world

2. Introduction
 The Basel iii Compliance Professionals Association
(BiiiCPA) is the largest association of Basel III
professionals in the world
 www.basel-iii-association.com
 A business unit of the Basel ii Compliance Professionals
Association (BCPA), the largest association of Basel II
professionals in the world
 www.basel-ii-association.com

3. Introduction
 The association develops and maintains a compendium
of Basel iii related risk and compliance topics
 Subject matter experts review and update this body of
knowledge

4. Introduction
 Basel iii certificates:
 Certified Basel iii Professional (CBiiiPro)
 Certified Pillar 2 Expert - Basel 3 (CP2E-B3)
 Certified Pillar 3 Expert - Basel 3 (CP3E-B3)
 Certified Stress Testing Expert - Basel 3 (CSTE-B3)
 (The CP2E-B3, CP3E-B3, CSTE-B3 are under development)

5. Introduction
 Certified Basel iii Professional (CBiiiPro): The exam is
online
 To find more:
 www.basel-iii-
association.com/Questions_About_The_Certification_And_The_Exams_1.pdf
 www.basel-iii-association.com/Certification_Steps_CBiiiPro.pdf

6. Agenda
 What is Basel iii?
 The Basel III papers
 Was Basel II responsible for the market crisis?
 Introduction to the Basel III Amendments
 The Financial Stability Board (FSB), the G20 and the
Basel III framework

7. Agenda
 “Principles for enhancing corporate governance”
 BIS, October 2010
 The key areas where the Basel Committee believes the
greatest focus is necessary:
 1. Board practices
 2. Senior management
 3. Risk management and internal controls

8. Agenda
 4. Compensation
 5. Complex or opaque corporate structures
 6. Disclosure and transparency
 The role of supervisors
 “Sound Practices for the Management and Supervision of
Operational Risk”
 BIS, December 2010
 The 9 principles

9. Agenda
 The Basel III Framework: Important Amendments
 Firm Specific Changes
 System-Wide Systemic Risk-Based Framework
 The Quality of Capital
 The Risk Weighted Assets
 The Capital Ratio
 Global Liquidity Standards

10. Agenda
 Capital Conservation
 Leverage Ratio
 Countercyclical Capital Buffer
 Systemically Important Financial Institutions (SIFIs)
 Systemically Important Markets and Infrastructures
(SIMIs)
 Risk Modelling, Stress Testing and Scenario Analysis

11. Agenda
 Pillar 2 Amendments
 “Principles for sound stress testing practices and
supervision”
 Use of stress testing and integration in risk governance
 Stress testing methodologies
 Scenario selection
 Principles for sound stress testing practices and
supervision

12. Agenda
 Firm-wide stress testing
 15 stress testing principles for banks
 6 stress testing principles for supervisors
 “Recognising the risk-mitigating impact of insurance in
operational risk modelling” BIS, October 2010
 Insurance industry supervision
 Banking supervisors’ assessment processes
 Approval of insurance contracts

13. Agenda
 Revoking approval for recognising insurance mitigation
in capital
 Maximum 20% operational risk capital charge reduction
 Modelling methodology
 Traditional and proposed insurance policies
 Criteria for recognising insurance mitigation
 Partial insurance modelling

14. Agenda
 Understanding Supervisory Colleges
 “Good practice principles on supervisory colleges”
BIS, October 2010
 Principles for both home and host supervisors
 Principle 1: College objectives
 Principle 2: College structures
 Home supervisors, Host supervisors
 Principle 3: Information sharing
 Principle 4: Communication channels

15. Agenda
 Principle 5: Collaborative work
 Principle 6: Interaction with the institution
 Principle 7: Crisis management
 Principle 8: Macroprudential work
 Case Study: Committee of European Banking
Supervisors, Guidelines for the Operational Functioning
of Supervisory Colleges: Joint decision on model
validation

16. Agenda
 Dodd-Frank Act and Basel III
 The Capital Requirements Directives (II, III, IV) and
Basel III
 Solvency II and Basel III
 Investment Banking, Retail Banking, Corporate Banking
after Basel III
 The impact of Basel III
 Closing remarks

17. Why the dots … are used?
 We often use dots … why?
 An opportunity to understand the importance of certain words
and phrases
 Example:
 While it is helpful to draw on extreme values from historical
periods of stress …
 … sensitivity analysis ***should also include hypothetical***
extreme values …
 … to ensure that a wide range of possibilities is included
 There are ***no words that are omitted*** when we use dots
17

18. What is Basel III?
 According to Jaime Caruana, General Manager, Bank for
International Settlements …
 … Basel III is defined as the enhanced Basel II capital
framework and …
 … the new global micro- and macroprudential banking
standards
 Basel III is marrying the microprudential and the
macroprudential approaches to supervision

19. There is no single “Basel III Paper”

20. There is no single “Basel III Paper”
 “What could more broadly be referred to as Basel III
began with the issuance of the revised securitisation and
trading book rules in July 2009…
 … and then the consultative document in December 2009
 The trading book rules will be implemented at the end of
2011 and the new definition of capital and capital
requirements in Basel III over a six-year period
beginning in January 2013”
Hervé Hannoun, Deputy General Manager, Bank for
International Settlements, 22 November 2010

21. Basel III: A global regulatory framework for more
resilient banks and banking systems
 “Basel III: A global regulatory framework for more
resilient banks and banking systems”
Bank of International Settlements, December 2010
 This document, together with the document …
 … “Basel III: International framework for liquidity risk
measurement, standards and monitoring”…
 … presents the Basel Committee’s reforms to strengthen
global capital and liquidity rules …
 … with the goal of promoting a more resilient banking
sector

22. Basel III: A global regulatory framework for more
resilient banks and banking systems
 The ***objective*** of the reforms is to improve the
banking sector’s ability to absorb shocks …
 … arising from financial and economic stress, whatever
the source …
 … thus reducing the risk of spillover from the financial
sector to the real economy

23. Basel III: A global regulatory framework for more
resilient banks and banking systems
 Also, to improve risk management and governance …
 … as well as strengthen banks’ transparency and
disclosures…
 … and to strengthen the resolution of systemically
significant cross-border banks
 The Basel Committee strengthens the regulatory capital
framework …
 … building on the three pillars of the Basel II framework

24. There is no single “Basel III Paper”
 Basel III in Europe includes the revisions to the
European Union’s Capital Requirements Directive (CRD)
 1. CRD II (higher-quality capital)
 2. CRD III (amendments to market-risk and
securitization)
 3. CRD IV (capital rules, liquidity, leverage, single
European rulebook in banking)

25. Was Basel II responsible for the market
crisis?
 “Forgive me for being very blunt, but I do NOT believe
that Basel II contributed to the recent crisis for two
reasons
 First, the crisis manifested itself in 2007 on the basis of
imbalances that had built up prior to the implementation
of Basel II
 Second, many countries that have adopted Basel II did so
in 2008 or later. The crisis came too soon for Basel II to be
credibly held responsible”
Jaime Caruana, General Manager, Bank for International
Settlements

26. Basel III – When?
 National implementation for Basel Committee member
countries will begin on 1 January 2013
 It will be incremental and is expected to reach the final
level on 1 January 2019

28. Basel 2
 Basel II implementation
 At the Pittsburgh Summit, the G20 Leaders reaffirmed
their commitment to adopt the Basel II framework…
 … with all major G20 financial centres to adopt Basel II
by 2011 and the other G20 countries progressing toward
adoption

29. Basel 2
 Most countries have already fully adopted Basel II…
 … and the remaining countries are still in the process
 The effects of the financial crisis became manifest in 2007
and built-up prior to the implementation of Basel II

30. Introduction to the
Basel III Amendment

31. A really important question
 Can I learn today what is going to happen tomorrow in
the financial sector?
 Answer: Yes
 You must monitor the recommendations from the
Financial Stability Board (FSB) …
 … that will be endorsed by the G-20 …
 … and then become part of the Basel iii framework and
other laws and regulations

32. A really important question
 The Basel Committee on Banking Supervision (BCBS)
has translated the FSB’s recommendations into …
 … a new regulatory capital and liquidity regime
 The FSB was established in April 2009 as the successor to
the Financial Stability Forum (FSF)
 The FSF was founded in 1999 by the G7 Finance
Ministers and Central Bank Governors

33. The Financial Stability Board (FSB)
 G7 had commissioned Dr Tietmeyer (President of the
Deutsche Bundesbank) to recommend new structures for
enhancing cooperation …
 … among the various national and international
supervisory bodies and international financial
institutions …
 … to promote stability in the international financial
system
 He called for the creation of a Financial Stability Forum

34. The Financial Stability Board (FSB)
 G7 Ministers and Governors endorsed the creation of the
FSF at a meeting in Bonn in February 1999
 The FSF would bring together:
 1. National authorities responsible for financial stability
in significant international financial centres …
 … namely treasuries, central banks, and supervisory
agencies

35. The Financial Stability Board (FSB)
 2. Sector-specific international groupings of regulators
and supervisors …
 … engaged in developing standards and codes of good
practice
 International financial institutions …
 … charged with surveillance of domestic and
international financial systems …
 … and monitoring and fostering implementation of
standard

36. The Financial Stability Board (FSB)
 3. Committees of central bank experts concerned with
market infrastructure and functioning
 In November 2008 the Leaders of the G20 countries called
for a ***larger membership of the FSF***
 A broad consensus emerged in the following months
towards placing the FSF on stronger institutional ground
with an expanded membership

37. The Financial Stability Board (FSB)
 Expanded membership can strengthen the effectiveness
of the FSB as a mechanism …
 … for national authorities, standard setting bodies and
international financial institutions …
 … to address vulnerabilities and …
 … to develop and implement strong regulatory,
supervisory and other policies in the interest of financial
stability

38. The Financial Stability Board (FSB)
 As announced in the G20 Leaders Summit of April
2009…
 … the expanded FSF was re-established as the Financial
Stability Board (FSB) with …
 … a broadened mandate to promote financial stability

39. FSB Charter
 Objectives of the Financial Stability Board
 The Financial Stability Board (FSB) is established to
coordinate at the international level …
 … the work of national financial authorities and
international standard setting bodies (SSBs) in order…
 … to develop and promote the implementation of
effective regulatory, supervisory and other financial
sector policies

40. FSB Charter
 Mandate and tasks of the FSB
 (1) As part of its mandate, the FSB will:
 (a) Assess vulnerabilities affecting the global financial
system …
 … and identify and review on a timely and ongoing basis
the regulatory, supervisory and related actions needed to
address them, and their outcomes

41. FSB Charter
 (b) Promote coordination and information exchange
among authorities responsible for financial stability
 (c) Monitor and advise on market developments and their
implications for regulatory policy
 (d) Advise on and monitor best practice in meeting
regulatory standards

42. FSB Charter
 (e) Undertake joint strategic reviews of the policy
development work of the international standard setting
bodies …
 … to ensure their work is timely, coordinated, focused on
priorities and addressing gaps
 (f) Set guidelines for and support the establishment of
supervisory colleges

43. FSB Charter
 (g) Support contingency planning for cross-border crisis
management …
 … particularly with respect to systemically important
firms
 (h) Collaborate with the International Monetary Fund
(IMF) to conduct Early Warning Exercises
 (i) Undertake any other tasks agreed by its Members in
the course of its activities

44. FSB Charter
 (2) The FSB will promote and help coordinate the
alignment of the activities of the SSBs …
 … to address any overlaps or gaps and …
 … clarify demarcations in light of changes in national
and regional regulatory structures …
 … relating to prudential and systemic risk, market
integrity and investor and consumer protection,
infrastructure, as well as accounting and auditing

45. List of FSB Members
 A. Member Jurisdictions
 Argentina
 · Central Bank of Argentina
 Australia
 · Department of the Treasury
 · Reserve Bank of Australia
 Brazil
 · Ministry of Finance
 · Central Bank of Brazil
 · Securities and Exchange Commission of Brazil
 Canada
 · Department of Finance
 · Bank of Canada
 · Office of the Superintendent of Financial Institutions (OSFI)

46. List of FSB Members
 China
 · Ministry of Finance
 · People’s Bank of China
 · China Banking Regulatory Commission
 France
 · Ministry of Economy, Industry and Employment
 · Bank of France
 · Autorité des Marchés Financiers (AMF)
 Germany
 · Ministry of Finance
 · Deutsche Bundesbank
 · Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin)
 Hong Kong SAR
 · Hong Kong Monetary Authority

47. List of FSB Members
 India
 · Ministry of Finance
 · Reserve Bank of India
 · Securities and Exchange Board of India
 Indonesia
 · Bank Indonesia
 Italy
 · Ministry of the Economy and Finance
 · Bank of Italy
 · Commissione Nazionale per le Società e la Borsa (CONSOB)
 Japan
 · Ministry of Finance
 · Bank of Japan
 · Financial Services Agency

48. List of FSB Members
 Korea
 · Bank of Korea
 · Financial Services Commission
 Mexico
 · Ministry of Finance and Public Credit
 · Bank of Mexico
 Netherlands
 · Ministry of Finance
 · Netherlands Bank
 Russia
 · Ministry of Finance
 · Central Bank of the Russian Federation
 · Federal Financial Markets Service

49. List of FSB Members
 Saudi Arabia
 · Saudi Arabian Monetary Agency
 Singapore
 · Monetary Authority of Singapore
 South Africa
 · Ministry of Finance
 Spain
 · Ministry of Economy and Finance
 · Bank of Spain
 Switzerland
 · Swiss Federal Department of Finance
 · Swiss National Bank
 Turkey
 · Central Bank of the Republic of Turkey

50. List of FSB Members
 United Kingdom
 · HM Treasury
 · Bank of England
 · Financial Services Authority
 United States
 · Department of the Treasury
 · Board of Governors of the Federal Reserve System
 · Securities and Exchange Commission
 European Central Bank
 European Commission

51. List of FSB Members
 B. International Financial Institutions
 · Bank for International Settlements (BIS)
 · International Monetary Fund (IMF)
 · Organisation for Economic Co-operation and Development (OECD)
 · World Bank
 C. International Standard-Setting, Regulatory, Supervisory and Central Bank
 Bodies
 · Basel Committee on Banking Supervision (BCBS)
 · Committee on Payment and Settlement Systems (CPSS)
 · Committee on the Global Financial System (CGFS)
 · International Accounting Standards Board (IASB)
 · International Association of Insurance Supervisors (IAIS)
 · International Organization of Securities Commissions (IOSCO)

52. The G20

53. The G20
 The Group of Twenty is a group of Finance Ministers
and Central Bank Governors from 20 economies:
 19 countries plus the European Union…
 … which is represented by the President of the European
Council and by the European Central Bank

54. The G20
 The G20 promotes open and constructive discussion
among systemically important countries …
 … on key issues related to financial and economic
policies
 The G20 leaders began meeting as a group only in the
last few years…
 … but the G20 finance ministers have been meeting
annually since 1999

55. The G20
 Those meetings had grown out of meetings coordinated
by the G7…
 … (the US, Japan, United Kingdom, France, Germany,
Canada and Italy) …
 … in the years following the 1974 oil shock
 By the end of the 1990s emerging markets played an
increasingly important part in the global financial
system…
 … and that needed to be reflected in international
economic governance

56. The G20
 The G20 represents about two thirds of the world’s
population …
 … and nearly 88% of the world’s economy

57. Basel III, the G20 and the FSB
 12 November 2010, Seoul, Korea:
 At the Summit, the G20 Leaders endorsed the Basel
Committee’s new bank capital and liquidity framework
(Basel iii) …
 … and committed to adopt and fully implement the
framework within the agreed time frame
 They also endorsed the FSB’s agreed policy framework
for reducing the moral hazard posed by Systemically
Important Financial Institutions (SIFIs)

58. Basel III, the G20 and the FSB
 Financial institutions that are clearly systemic in a global
context (G-SIFIs) should have …
 … ***higher loss-absorbency capacity than the minimum
levels agreed in Basel III***
 These institutions must also be subject to more intensive
co-ordinated supervision and resolution planning …
 … to reduce the probability and impact of their failure

59. Basel III, the G20 and the FSB
 Since the onset of this crisis of 2007…
 … national authorities and international bodies, with the
FSB as a central locus of coordination…
 … have advanced a major program of financial reforms,
based on clear principles and timetables for
implementation …
 … that seek to ensure that a crisis on this scale never
happens again

60. Basel III, the G20 and the FSB
 A key piece of the global reform agenda has been
addressed with agreement on strengthened bank capital
and liquidity standards by the Basel Committee on
Banking Supervision (BCBS)…
 … and ***its governing body***…
 … the Group of Governors and Heads of Supervision
(GHOS)
 The new standards will significantly improve the quality
and quantity of bank capital and enhance the resilience
of the banking system

61. Basel III, the G20 and the FSB
 Basel III was approved at the GHOS meeting on 26 July
2010…
 … and the calibration of the new minimum requirements
and capital buffers were approved at the GHOS meeting
on 12 September 2010
 The implementation phase and transitional arrangements
were also agreed at the September GHOS meeting

62. Basel III, the G20 and the FSB
 Legislative and regulatory reforms have progressed in
major jurisdictions
 These have also provided for the development of
***system-wide oversight*** arrangements…
 … such as the US Financial Stability Oversight Council
(FSOC) …
 … and the EU European Systemic Risk Board (ESRB)

63. Basel III, the G20 and the FSB
 With regulatory requirements on the banking system
tightening …
 … the need intensifies for more systematic attention to
activities in the ***shadow*** banking sector
 This sector continues to play an important role in credit
intermediation and liquidity transformation …
 … outside the rigorous capital and liquidity regulatory
framework that applies to banks

64. To continue with Part B of the course:
 Become a Certified Basel iii Professional (CBiiiPro)
 To learn more:
 www.basel-iii-
association.com/Basel_III_Distance_Learning_Online_C
ertification.html