Questions tagged [banking-regulations]
The banking-regulations tag has no usage guidance.
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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 ...
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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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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 ...
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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?
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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 ...
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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 ...
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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?
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
- 241
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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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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 ...
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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 ...
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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, ...
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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?
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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 ...
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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 ...
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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/...
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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 ...
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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?
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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) ...
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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 ...
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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 % ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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.
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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 ...
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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 ...
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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) ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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 ...
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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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