# Tag Info

9

The argument about Basel is an adjunct to the central bank argument. There, a relatively price-insenstive CB either distorts credit by buying it directly (ECB, Fed wrt Agencies). Or distorts it indirectly by distorting the govvie market, pushing hitherto govvie holders into credit markets at a different price to what everyone would see without this effect. ...

4

Your equation is right. There are 2 ways to write EAD: EAD = Drawn + a x Undrawn; or EAD = a x Limit. In both equations, a is called CCF but it is derived/estimated differently depending on which equation you use. You can refer to the paper "EAD Estimates for Facilities with Explicit Limit" by Moral.

4

The journalist that wrote this article doesn't understand what he's writing about. When such articles appear on Bloomberg or Reuters, they are usually computer-generated, so programming bugs can be blamed for something stupid being written. But here a clueless and ignorant human being is probably responsible for the quote. There are no "Basel-compliant&...

4

Assume, for a moment, that all of the math behind modern portfolio theory is incorrect. See, for example, this video on deriving the distribution of returns. Without the normality assumption, indexing and methodologies like the Basel accords are not neutral. The Gaussian distribution is the result of a convergent process over time. The system has to have ...

3

I believe the document that @clarkmaio referred to is Minimum capital requirements for market risk and the issue described can be found on page 52. As explained here: The revised FRTB rules require ES to be calculated using a base liquidity horizon of 10-days and this ES to be scaled by mapping each risk factor to one of the risk categories below: Meaning ...

3

The paper continues "The quantity p(Y) provides the loan default probability under the given scenario." But the default probability is 0.001, not 0.999 as in the IRB version. So G(0.999) = -G(1 - 0.999) and that is where the minus comes in.

3

Please look at the 16 December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability and related FAQs "Basel III definition of capital - Frequently asked questions" like bcbs 211.

3

let me try answer my own questions, partially, from below that are exerpted from FRM exam notes. So actually the K above, is UL, though it derives only from PD and maturity, but the G, N and 0.999, actually are calculating the VaR and UL. So, CAR is defined based on EAD and K, while K means UL. the essence is, CAR is to cover Unexpected Loss -- captical ...

3

So far I only know that SunGard has a product named "Ambit Focus", where its module "Liquidity Risk" supports the LCR and NSFR reports according to Basel III liquidity rules.

2

For more explanations you can also try out "An explanatory note on the Basel II IRB Risk Weight Functions", or if you read german, "Die IRB Formel".

2

Let's try to summarize your question before answering it: on the one hand concentration risk comes from the fact your book is highly correlated to few factors, hence you cannot take profit of diversification, market moves will affect you a lot; on the other hand wrong way risk is about being exposed to a counterparty such a way that the more you have ...

2

High level Answer: Trading Book: All the books held in Capital Markets or Investment Banking Division of a Bank. Instruments will include:Swaps, Stocks, Bonds, etc. Banking Book: All the books held in Commercial or Retail Banking Division of a Bank. Instruments will include:Loans to corporates, Bank Guarantees, etc. Market Risk Measure: Sensitivities like ...

2

I assume this is UK specific as RNIV is a PRA concept. You can’t recognise diversification as per the requirements which are detailed in the ss13/13: see section 2. https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisory-statement/2017/ss1313update The EBA adapted the above framework for the banks under its supervision and ...

2

Moving assets between banking and trading books would count as redesignation (paragraph 29). Internal risk transfer is the transfer of risk between the books (say banking and trading books) via an internal trade. Say you have credit risk exposure in the banking book, and you book a hedging trade with the trading book, then this would be an internal risk ...

2

The EBA performs the HDP (high default portfolio) and LDP (low default portfolio) benchmarking exercises, which would be relevant. You can find it on their website. Here are a couple of examples: https://eba.europa.eu/documents/10180/2087449/EBA+Report+results+from+the+2018+Credit+Risk+Benchmarking+Report.pdf https://eba.europa.eu/documents/10180/15947/EBA+...

2

The first equation is already a PIT PD if $\displaystyle PD_{i}$ is substituted by TTC PD. The challenges of using this model are: (1) $\displaystyle \rho _{i}$, the asset correlation, is very difficult to estimate. (2) A multi-period model is required for z so that you can use the PIT PDs in IFRS9. Using Kalman filter and Basel estimates of asset ...

1

Agree with @Kermittfrog, your request is not very clear. A common methodology for calculating initial margin for uncleared OTC derivatives is SIMM. CCP's all have their own method. For this reason, interest rate swap quotes are frequently received for clearing on CME or LCH for example. Also, many data providers have CME/LCH basis due to IM imbalances at ...

1

I honestly wouldn't read too much into the 8% figure. It's just a historical ballpark figure for minimum adequacy to weather all but the biggest shocks (in which case, it would be sensible and appropriate for the central banks to step in and play their lender-of-last resort role). Most banks after their post-GFC workouts run much higher than this these ...

1

So, basically, the answer is no. For capital requirements Basel has three categories: a) Counterparty Credit Risk b) Market Risk c) Operation Risk All RWA calculations are additive. If your hedge is with the same counterparty then it likely offsets a) and b) and possibly c). If your hedge is only a market hedge then it will only offset b) and possibly ...

1

I don't know the answer to this and am responding purely out of interest and idea sharing, since I like the question. Could this work as a Parametric intensive computational statistical approach; 1) Define a universe of positions the portfolio can feasibly hold, and model each with some assumption about default over a given time period (statically at first ...

1

Not a complete answer put perhaps partial help. What alternatives do we have for pillar 2? Hard to say. There doesn't seem to be any specific alternatives, apart adjusting your old procedures to whatever the institutions you are working with require. 2: Does it have to be a loss distribution approach (LDA) or could it be something between LDA and a ...

1

A good place to start is the BIS (Bank for International Settlements) site. To be more specific on the Basel Committee on Banking Supervision part of the site. http://www.bis.org/bcbs/index.htm In my case (Brasil´s Basel III) the central bank page is the best place to look for the specifics of Basel III implementation for my country. I imagine that´s the ...

1

OneSumX (FRS Global - now officially Wolters Kluwer Financial Services). Due to the impact on market risk (explicit creation of new contracts from available liquidity lines, firstly affected by interest rate risk) and on credit risk (negative exposure to be considered in the LCR, and not simply floored to zero) you might need both the market and liquidity ...

Only top voted, non community-wiki answers of a minimum length are eligible