大浩浩的笔记课堂——FRM考试学习笔记127

Topic 56 Introduction of Basel Accord

1.Basic terms:

⑴economic capital:

It is an internal policy decision by senior management and the board.

⑵regulatory capital:

①definition:

It is the rule based with the intention to ensure enough capital that is in the banking system.

②motive:

It has a macro-prudential motive.

⑶risk-weighted assets(RWA):

①definition:

They are bank´s assets weighted according to risk.

②formula:

RWA=RW×NP

⑷loss:

①expected loss(EL):

其用reserve来覆盖预期损失。

②unexpected loss(UL):

其用capital来覆盖非预期损失。

③超过容忍水平的潜在损失

2.Evolution of Basel Accord:

⑴prior to 1988:

①Bank capital regulations were inconsistent across countries.

②Bank capital regulations ignored the riskiness of individual banks.

⑵1988 Basel Ⅰ:

①Strengthen and standardize the global banking system.

②Set capital charges against credit risk.

⑶1996 Amendment:

Add capital adequacy requirements against market risk.

⑷2004 Basel Ⅱ:

Create more risk-sensitive capital requirements and add a charge against operational risk.

⑸Basel Ⅲ:

①raising capital standards

②requiring a leverage ratio

③instituting a global liquidity standard

3.The 1988 Basel Ⅰ:

⑴capital requirement:

①The bank´s total assets to capital ratio had to be less than 20,or the capital to total assets had to be greater than 5%.

②To keep capital equal to at least 8% of the risk-weighted assets:

A.tier 1 capital(at least 4%):

a/ equity(at least 2%)

b/ noncumulative perpetual preferred stock

·特别注意！

·Goodwill is subtracted from equity.

B.tier 2 capital(supplementary capital):

a/ cumulative perpetual preferred stock

b/ certain types of 99-year debenture issues

c/ subordinated debt with an original life of more than 5 years

⑵Cooke ratio:

①The credit risk exposures can be divided into 3 categories:

A.those arising from on-balance-sheet assets(excluding derivatives):

The risk weight in this layer is:

a/ 0%:

cash,gold bullion,Treasury bonds or insured residential mortgages

b/ 20%:

claims on OECD banks,securities issued by U.S. government agencies,claims on municipalities

c/ 50%:

uninsured residential mortgage loans or derivatives

d/ 100%:

corporate bonds/loans,less-developed country debt

B.those arising for off-balance sheet terms:

To account for off-balance-sheet items,such as guarantees,letter of credit,credit lines,the Basel Accord computes a credit exposure that is equivalent to the notional for a loan,through credit conversion factors.

C.those arising form over-the-counter derivatives:

Other derivatives are given special treatment due to the complexity of their exposures:

max(V,0)+a×L

a/ V:the current value of the derivative to the bank

b/ a:add-in factor

c/ L:principal amount

·特别注意！

·The credit equivalent amount arising from the second or third category of exposures is multiplied by the risk weight for the counterparty in order to calculate the risk-weighted assets.

·The risk weights are similar to those in first category,except that the risk weight for a corporation is 0.5 and the risk weight for OECD banks is 0.2.

②The total risk-weighted assets for a bank with N on-balance-sheet items,and M off-balance-sheet items:

⑶major limitations:

①All corporate loans were treated the same regardless of the 

creditworthiness of the borrower.

②It also ignored the benefits of diversification,did not include a model of default correlation.

4.The 1995 netting:

⑴With netting,the exposure is the payoff from a option on a portfolio:

⑵Without netting,the exposure is the payoff from a portfolio of options:

⑶1995,netting had been successfully tested:

5.The 1996 amendment:

⑴the formula:

①1-day,99%:

max(VaR_t-1,m_c×VaR_avg)+SRC

A.t-1:the precious day

B.m_c:multiplicative factor,最小值为3

C.VaR_avg:average over the past 60 days

D.SRC:specific risk charge

②10-day,99%:

B.9.48×average 1-day VaR

③total capital:

Total capital=(credit risk RWA+market risk RWA+operational risk RWA)×8%

⑵back-testing:

①An exception occurs if the day´s change in value exceeded the VaR estimate of the precious day.

②When backtesting VaR,the number of exceptions is determined for a 250-day testing period.Based on the number of exceptions,the bank´s exposure is categorized into one of three zones and VaR is scaled up by the appropriate multiplier(subject to a floor of m_c=3):

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