Basel III, Risk Assessment and Stress Testing

Market and Operational Risk 

• Definition of market risk and the importance of separating trading book from banking book
• Examining how Basel III refined the market risk framework: 
• Standardized approach (SA) for market risk 
• Internal model approach (IMA) for market risk: Value at Risk vs. Stresses Var (sVaR)
• Higher capital for securitized products 
• Capital buffers for market risk
• Understanding how off-balance sheet exposures and how Basel III addressed it 
• Definition of operational risk and the differences between non-credit and non-market risks
• Exploring the three methods of calculating operational risk capital under Basel II:
• Basic indicator approach (BIA)
• Standardized approach (SA)
• Advanced measurement approach (AMA)
• Understanding Basel III operational risk capital requirements: 
• Elimination of AMA
• Introduction of the standardized measurement approach (SMA)
• Key SMA calculation components 
• Understanding loss distribution approach (LDA) and scenario-based analysis (SBA) methods for supporting operational risk quantification

Credit Risk and Basel III's Role in Stress Testing

• Exploring alternatives to external credit ratings used to reduce dependence on external ratings: 
• Internal ratings-based (IRB) approach
• Credit default swaps (CDS) and market-based indicators 
• Financial statement analysis and credit scoring models 
• External data from regulatory and industry reports 
• Identifying key drivers for credit concentration risks, and how its addressed in the Basel III capital framework 
• Understanding the Basel III large exposures framework (LEF) and its risk mitigation measures
• Introduction to stress testing under Basel III: its types, requirements, and types of risk tested
• Understanding the backtesting methodology and its role in validating stress test models 
• Discussing the limitations of stress testing models

Counterparty Credit Risk (CCR), Liquidity Risk, and Stress Testing Frameworks

• Understanding the nature of counterparty credit risk (CCR) and the mechanisms introduced by Basel III to address CCR
• Exploring drivers of CCR under Basel III: 
• Counterparty default probability (PD)
• Exposure at default (EAD)
• Recovery rate 
• Margin requirements 
• Understanding liquidity coverage ratio (LCR) formula and component:
• High-quality liquid assets (HQLA)
• Net cash outflows 
• Explaining net stable funding ratio (NSFR) and its components: 
• Available stable funding (ASF)
• Required stable funding (RSF)
• Understanding credit value adjustment (CVA) and its risk capital charge under Basel III
• Discussing the role of collateral in CVA management and types of collateral used for CVA reduction  
• Discussing LCR and CVA requirements and implementation under Basel III

Basel III Implementation and Impact on Banking Business Model 

• Discussing key areas of Basel III impact on banking business models: 
• Capital structure and profitability 
• Changes in lending and credit allocation 
• Liquidity and funding strategy 
• Market risk and trading activities 
• Cost of compliance and technology investments 
• Analyzing long-term structural changes in banking after the adaptations of Basel III
• Identifying the key components of Basel III implementation: Governance, Risk assessment systems, Data management
• Understanding regulatory reporting requirements for Basel III compliance: 
• Capital and risk reporting 
• Liquidity and funding reporting 
• Stress testing and scenario analysis reporting
• Addressing challenges in Basel III implementation and reporting
• Discussing future trends in Basel compliance systems