Questions tagged [banking-regulations]

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0answers
58 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 ...
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6answers
3k 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 ...
4
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2answers
242 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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1answer
66 views

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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0answers
25 views

What is the shadow cost of capital for a bank?

With regard to banks RWAs (risk weighted assets), what does it mean a trade leads to a positive shadow cost of capital?
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0answers
12 views

What are Statistical methodologies practically used in Slotting approach as prescribed by EBA for specialized lending?

While preparing the Rating Tools (used to underwrite) specialized loans (project finance, object finance etc.), Underwriters go by their expert knowledge. Experts can identify the risk drivers and ...
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0answers
51 views

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 ...
2
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1answer
238 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 ...
1
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1answer
139 views

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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0answers
10 views

Bank deposit insurance beyond FSCS limit in UK

For companies, the Financial Services Compensation Scheme (FSCS) provided by the Bank of England only covers up to £85,000. Is there an insurance or financial product that provides insurance above ...
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0answers
12 views

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?
4
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1answer
302 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 ...
0
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1answer
56 views

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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4answers
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 ...
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2answers
250 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/...
2
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1answer
152 views

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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0answers
87 views

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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1answer
75 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) ...
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0answers
25 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 ...
1
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1answer
199 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 % ...
2
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0answers
135 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 ...
1
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1answer
713 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 ...
2
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3answers
2k 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 ...
4
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2answers
96 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 ...
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1answer
144 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 ...
7
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0answers
67 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 ...
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0answers
29 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 ...
2
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0answers
103 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 ...
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4answers
122 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 ...
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1answer
694 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.
2
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0answers
3k 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 ...
6
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1answer
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 ...
0
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3answers
432 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) ...
2
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2answers
8k 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 ...
10
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2answers
7k 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 ...
14
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1answer
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 ...
4
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0answers
243 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 ...
0
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1answer
250 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 ...
1
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1answer
253 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 ...
5
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3answers
197 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 ...
2
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0answers
108 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 ...