Basel ii - quo vadis

Basel II
Quo vadis?

Introduction
•  What is Basel II? •  Changes to Basel II pillar 1 •  Suggestions for Basel III •  Discussion

Basel II
•  International framework •  Not compulsory • Domestic implementation by FINMA
•  ERV (Eigenmittelverordnung & Risikoverordnung) •  FINMA circular

Basel II

Pillar 1

Pillar 2

Pillar 3

Minimum capital requirements

The supervisoryreview process

Disclosure proposals for pillar 1 & 2

Pillar 1: minimum capital
Balance Sheet A Loans P Deposits

Assets

Equity required capital

≥

8%

Sum of credit risk-weightedassets + (capital charges for market risk + operational risk) x 12.5

Pillar 1: Minimum capital calculation

Credit risk
•  Standard approach •  Internal ratings-based (IRB)

Market risk • Standard approach
•  Internal models (V-a-R)

Operational risk
•  Basic indicator approach •  Standardised approach

To determine regulatory capital

Pillar 1: Credit risk
Standard approach • Internal ratings-based (IRB) Internal system which rates borrower (retail, companies, sovereigns) examples of rating factors: •  soft (management) •  hard (debt rate, income, income rate)

CreditAssessment Based on external ratings (S&P, Moody‘s)

• 

=> creditworthiness

• Internal risk weights

Pillar 2: The supervisory review process
FINMA Banks

Enough equity capital?Additional capital required above the 8% mark?

Judge management and its risk management practices.

Advises Banks for better risk management processes.

Recognise critical factors early enough andstep in.

Pillar 3: Disclosure
Banks disclose information to other market participants => To enhance market discipline => Transparency on internal models used for assessment of required capital

„„

Subprime crisis 07/08

Proposed changes to Basel II
•  Strengthened risk coverage of capital framework •  Quality, consistency & transparency of capital base

•  Leverage ratio
• ...