Questions tagged [banking-regulations]

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Market risk in Tier 1 capital of a bank

The common stock of the bank is considered to be a part of the Tier 1 capital, but it is also subject to market risk. The Investopedia definition distinguishes between Tier 1 and Tier 3 capital by the ...
cookiemonster's user avatar
2 votes
1 answer
183 views

FRTB Delta CSR vs Delta GIRR

In Basel III, FRTB SA includes different market risk capital requirements for interest rate (GIRR §21.19) and credit spread risk (CSR §21.20) exposures. These are different risks, as credit spreads ...
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180 views

What is Day One Profit and why is it a matter/important? [closed]

I am aware that Day One Profit is something that all banks calculate and report etc. I have not managed to find a free comprehensive review of it, what is it, how it's calculated, who and why requests ...
f f's user avatar
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Liquidity assessment for OTC derivatives

How does a bank assess the liquidity of OTC derivatives such as swaps, options, and forwards, for which there isn't public data regarding trading volume?
SuavestArt's user avatar
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Balance Sheet Value of a Repo

I am relatively new to repos and I am trying to find out whether there is a standard practice for calculating balance sheet value of a repo. Are there any regulations that prescribe how banks shall ...
Platon's user avatar
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All I need to know about FRTB

I know the basics of FRTB (Fundamental Review of the Trading Book) but I can see that most of the risk management books have maximum a chapter dedicated to FRTB and are relatively old so don't reflect ...
Goo Gle's user avatar
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1 answer
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Calculate core deposits in commercial bank

Given 10 years history of past balances of deposit accounts in a commercial bank, I need to calculate what part of those deposits were core, month by month. This is my thinking: for each account/month ...
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Core deposits forecasting in stress testing

I’m designing a stress test at a commercial bank. What are the advantages/disadvantages of forecasting core NMD deposits vs. total deposit balances?
ps0604's user avatar
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3 answers
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How does the bank uses the provisioning amount and RWA based capital adequacy

As I am new to the banking risk management, I need some clarity on the concept of provisioning and capital adequacy with respect to banking industry. As the banks make loans and some of these loans ...
user51988's user avatar
2 votes
0 answers
122 views

Holding cost of risky sovereign debt in Europe

I am trying to better understand the sovereign bond market in the eurozone. In particular is it costlier for some institutions to hold periphery country bonds that contain more credit risk than say ...
fes's user avatar
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Why did the month-end (ir)regularities in Effective Federal Funds Rate (EFFR) disappear in 2018?

The Federal Funds rate has exhibited regular drops at month ends since beginning of 2015. (Source: FRED https://fred.stlouisfed.org/series/EFFR) Some studies (e.g., https://www.mdpi.com/1911-8074/14/...
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Allocation methodologies under FRTBA SA

Hi I have been comparing several methodologies for allocation of standalone capital charge to the underlying desks and I keep getting very vague results on which allocation is superior in terms of ...
Anna Litvin's user avatar
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118 views

How to calculate contributions to the granularity adjustment

In the Basel pillar 2 framework a granularity adjustment is introduced. While the capital requirements in pillar 1 do not take concetrations into account, this is meant to be covered with this ...
Richi Wa's user avatar
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10 votes
6 answers
4k views

Why do banks have capital requirements on deposits?

In article from Reuters: Big U.S. banks hunger for loans, capital relief as deposits pile up, we read: Combined with rules that require more capital for bigger balance sheets, that makes deposits ...
d_e's user avatar
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2 answers
648 views

Forecasting non-maturity deposits with machine learning

I need to forecast non-maturity deposits in a bank. My intent is to use Recurrent Neural Networks (aka deep learning) to model time series. The model will learn from past bank data and macroeconomic ...
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1 answer
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How to calculate bid/ask spread for an index?

I am trying to calculate implicit transaction costs for a newly launched portfolio, as per the definition from ESMA: "transaction costs may be calculated either by multiplying an estimate of ...
Michael Bergstrom's user avatar
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What are eligible liabilities?

Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8 percent. However, in order to an effective resolution the bank muss hold not only to its capital, but also eligible ...
R_quester's user avatar
2 votes
1 answer
1k views

Core Deposits when modelling Non-Maturity Deposits according to IRRBB

When modeling Non-maturity deposits (NMDs) the Basel Committee suggests the following (see 31.109 of the guidelines): Banks should distinguish between the stable and the non-stable parts of each NMD ...
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Risk-Weighted assets and Risk Weight

I am not really sure I understand the meaning of Risk weight defined as RW = RWA/EAD, where EAD = Exposure at Default RWA = Risk-Weighted assets From a bank's perspective: If I have two portfolios, ...
maj3r's user avatar
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What are some robust Contingent Capital Instrument available?

I recently was made aware of the existence of Contingent Capital Instruments like CoCo Bonds. I was wondering if there are other robust options available for Big Banks in this domain?
noisyoscillator's user avatar
4 votes
1 answer
513 views

99.97% Percentile VaR Approximation

I have been working with a group which references a 99.97% 10-day VaR figure. They calculate this value via a 99% 1-day historical simulation over 500 days and then scale it under the assumption of a ...
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EBA Stress Test Arbitrage

The EBA stress test defines specific shocks to yield curves that are applied to positions as at year end. There is no account for cashflows - it is simply an immediate shock. Suppose the interest ...
Attack68's user avatar
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12 votes
4 answers
3k views

Does banks' profitability really suffer under low interest rates

It is always said that European banks suffer, amongst other things, from the low interest rate environment governing the Eurozone. And that in a rising interest rate environment, banks' profitability ...
MinaThuma's user avatar
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-1 votes
2 answers
318 views

List of European banks by assets and/or deposits

Does anyone know where I can find a list of European commercial banks that includes assets and/or deposits? I found this link on ECB's website: https://www.ecb.europa.eu/stats/financial_corporations/...
ps0604's user avatar
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1 answer
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Calculating PD of commercial bank loan

I have two main options to calculate PD of a loan in a commercial bank; with and without machine learning. On one hand, there are traditional methods such as Merton or KVM. On the other hand, I could ...
ps0604's user avatar
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0 answers
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Exposure at Default (EAD) models with and without the Credit Conversion Factor (CCF)

Exposure at Default (EAD) models with and without the Credit Conversion Factor (CCF). What are the pros and the cons of each, and which one should use a small commercial bank?
ps0604's user avatar
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1 answer
85 views

Are Indices Regulated

Suppose that a bank (or any regulated body) wants to sell and ETF, replicating some index. Does that replicator have to adhere to the Basel accords? Similarly, if a bank (or any regulated body) ...
ABIM's user avatar
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0 answers
31 views

Quantitative impact of Dodd-Frank Act on risk management

The US Dodd-Frank Act (DFA) introduced mandatory central clearing of standard (e.g. plain vanilla) swaps for big financial institutions in the US in 2013. It might be a broad question but: what have ...
user6441253's user avatar
1 vote
1 answer
256 views

CCAR Shocks Scenario

I was going through CCAR-2018-severely adverse market shocks file and under the tab: Equity by Geography, I found these shocks. I have two questions: 1) Whether the shocks to Vol points are in % ...
User's user avatar
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3 votes
0 answers
291 views

Modelling approaches for interest rate risk in the banking book (IRRBB)

I am having a hard time researching papers that deal with the measurement of market risk in the banking book. The trading book as I see it is similar to asset management and as the name says the ...
Richi Wa's user avatar
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1 vote
1 answer
933 views

Market Risk - Trading and Banking book in light of Basel III

I can not understand whether Basel III (in the part of market risk) applies both to Trading Book and Banking book or just to the first one. I have read that for what concerns Banking book you only ...
Klapaucius's user avatar
2 votes
3 answers
4k views

Banking. What's the difference between provision and capital adequacy regulations? (purpose-wise)

Is such summary reasonable? Provisions = predicted losses should reduce profit already now. (giving stimulus for a bank to make necessary responses already now) Capital adequacy = bank must use ...
industryworker3595112's user avatar
5 votes
2 answers
114 views

Approach to add scenarios to OpRisk loss distribution

There is quite a lot of literature on OpRisk modelling. My question focuses on a loss distribution approach (LDA). Let's look at a basic model. A Poisson-distributed $N$ and loss sizes $X_i$ and from ...
Richi Wa's user avatar
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4 votes
1 answer
176 views

Modelling operational risk for Basel pillar 2 (internal model for OpRisk VaR)

I am somewhat familiar with OpRisk for pillar 1. As far as I know OpRisk for pillar 1 will be replaced by standard approaches soon. So what is left is proper modelling in pillar 2. What are best ...
Richi Wa's user avatar
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7 votes
0 answers
84 views

Quantitative and regulatory aspects of portfolio integration in IRB credit portfolios

Say bank A buys a credit portfolio "B" (e.g. corporate loans or retail mortgage, ...) from bank B. Bank A fulfills the the requirements of CRR (capital requirement regulation) for its existing ...
Richi Wa's user avatar
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1 vote
0 answers
34 views

Why do supervisors deem qualified revolving retail less risky than other retail exposure

I would like to gain more understanding of the economic background of some Basel formulas. In the Basel guidelines in retail credit risk we have a risk weight function that depends on the correlation ...
Richi Wa's user avatar
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2 votes
0 answers
119 views

Application of Extreme Value Theory in banking liquidity risk analysis

The regulator forces banks to assess their (intraday) liquidity risk in normal and stressed conditions see e.g. BCBS 144 principle 9. To me this sounds pretty much like a possible application of EVT ...
Richi Wa's user avatar
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-1 votes
4 answers
131 views

Do banks have a target balance sheet?

I was wondering if banks have a certain target value when it comes to their balance sheet. I'm not speaking about the target leverage ratio or something like that. It's more like: "In the following ...
PAS's user avatar
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0 votes
1 answer
987 views

What is non-reservable criticized exposure?

I'm new to credit risk. I wanted to know what is the meaning of reservable/non-reservable criticized exposure? Can someone please help.
user3105943's user avatar
2 votes
0 answers
4k views

How exactly does "arranged financing" work?

Prime brokers offer what is called "arranged financing" which allows hedge funds to gain maximum leverage - more than allowed under the Portfolio Financing platform. I understand there is an element ...
Leo Scalpi's user avatar
7 votes
1 answer
1k views

Question regarding the Category 3 PRIIP MRM calculation

My question is regarding the European Commission regulation on standardizing the information in the key information documents for PRIIPs. In the Annex IV of the regulation, one can find the ...
Boris's user avatar
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0 votes
3 answers
610 views

Is a bondfuture an IRD or a Credit Derivative?

I need to categorize a BondFuture trade in one of the five major asset classes and I am not sure if it should put it to the interest rate asset class or the credit asset class. A quick (and dirty) ...
sen_saven's user avatar
  • 441
2 votes
2 answers
11k views

What is curvature risk?

The BCBS has presented a new standard approach for measuring risk for a portfolio, which is based on sensitivities, that is “delta”, “vega” and “curvature” risks. Delta risk measures the change in ...
Beginner's user avatar
10 votes
2 answers
10k views

How is the formula for the VEV (VaR-equivalent volatility) in the PRIIP document derived?

The recent regulation (page 32) on PRIIPs requires to compute a VaR-equivalent volatility defined as $$\mbox{VEV}=\frac{\sqrt{3.842-2\ln \mbox{VaR}}-1.96}{\sqrt{T}}$$ Does anyone have an idea how ...
splinter123's user avatar
14 votes
1 answer
2k views

Cheatsheet/summary of financial laws and regulations

I wonder whether there are or we can collect cheat-sheets for the various international regulations of the financial markets. There is e.g. the Dodd-Frank act for the US. Can we gather cheat sheets ...
Richi Wa's user avatar
  • 13.6k
4 votes
0 answers
259 views

Discrete Trading to reduce speculation

I recently read a paper by Terje Lensberg (2014) "Costs and benefits of financial regulation: Short-selling bans and transaction taxes" where he analyzed the effects of financial regulation (short ...
Montaigne's user avatar
0 votes
1 answer
334 views

Is it possible for two securities to have the same first 8 characters of a cusip, but differ in the check sum?

CUSIP is a 9 character long identifier. The last digit is a check sum checking the first 8 previous characters. This seems to me that it is not possible for two securities to have the same 8 ...
PBD10017's user avatar
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1 vote
1 answer
281 views

AT1 ratio, Core T1 ration and CET1 ratio

I would like to first know the precise definition of each one of those 3 ratios as well as there differences. On the web there is bit of a mess on the explanations. I could not find a simple and clear ...
Paul's user avatar
  • 608
5 votes
3 answers
210 views

How does US banks ensure that other country's banks aren't counterfeiting USD?

I have had this question for a long time. For example, if I wire 50M USD from China to the US, does the Chinese bank physically deliver 50M USD cash to the US bank? or is it just changing a number in ...
KoKo's user avatar
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2 votes
0 answers
116 views

How will the European requirements for prudent valuation affect derivatives pricing?

The European Banking authority has published the "EBA consults on draft technical standards on prudent valuation". How will these requirements for prudent valuation affect derivatives pricing, if at ...
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