Basel II & III
The Basel II regulatory requirements, originally published in 2005, set the minimum capital levels that an internationally active bank must maintain to cover credit, market and operational risk and provided the foundation for greater bank stability. Basel II created the working framework that regulators throughout the world use to establish consistent capital requirements and prudent risk management practices.
Our Basel II Solution
Wolters Kluwer Financial Services provides a proven holistic solution to the Basel II requirements. While traditionally viewed within the three pillar approach, our Basel solution links the three pillars to create a clear process, allowing banks to confidently calculate, monitor and disclosure their capital adequacy risks. Our module based solution leverages a single data platform for market and credit risk analysis, which is the basis for creating the reliable controls regulators are looking for from start to finish.
| Calculate | Monitor | Disclosure |
|---|---|---|
| Market Risk - Calculation of the capital requirement, to cover potential losses resulting from market risk in the trading book, under standard and internal model methods. Credit Risk - Calculation of the capital requirement for credit risk under the standardised and internal ratings based (IRB) methods defined in Basel II. |
Make critical decisions using the most accurate quantitative analysis. Gain a deeper understanding of the changing market and economic conditions covering interest rate risk banking book, and concentration risk analysis. | Satisfy the market disclosure needs for regardless of the jurisdiction. Promote public transparency regarding your bank’s capital adequacy framework, as well as the qualitative explanation of the assessment process. |
Basel III - The Layer of Liquidity
The Basel III directive sets a new focus on the liquidity component of risk management. Under the Basel II Accord liquidity risk was not addressed sufficiently. However, after the credit crisis and economic downturn, the Basel Committee on Banking Supervision developed Basel III, which not only adjusted the capital requirement levels (requiring banks to hold more quality capital and eliminating several illiquid capital categories) it also focused on liquidity risk analysis as a means to measure the economic stability of a bank. For the first-time, banks would be required to calculate and report on their liquidity risk.
To meet the need for greater liquidity risk controls, Wolters Kluwer Financial Services offers a comprehensive Liquidity Risk module. Like our Market and Credit Risk modules, the Liquidity Risk module calculates its analysis using the same validated data platform. Consisting of three main components, our liquidity risk solution covers the following:
- Asset Liability Management (ALM)
Banking book oriented analysis (nominal, net present value, fair value, book value, and amortised cost) for assets and liabilities, including interest sensitivity and liquidity gap analysis. Dynamic simulation allows forecasting using several scenarios for risk factors. - Liquidity Gap Analysis
Funding and market liquidity risk analysis, this component distinguishes between cash flows that are fully contract-determined, market-dependent or contingent on assumptions of the client behaviour. This includes static positions and/or new products. More advanced analyses calculate the liquidity at risk based on Monte Carlo simulations. The liquidity gap analysis also allows visualising the settlement risk grouped by exchange, payment types, counterparties, etc. - Market Value Analysis
Trading book oriented value and exposure analysis, including several valuation methods such as net present value, fair value and the calculation of sensitivities with respect to exogenous market risk factors (duration, key rate duration, convexity and option Greeks) and their stress testing. Value at Risk can be calculated using the parametric, historical or Monte Carlo approach.
For more information on how Wolters Kluwer Financial Services FRSGlobal can help your firm build an integrated Basel solution please contact us.
Each country has its own interpretation of regulations
Select from the regions and countries below for further details of specific ones
Liquidity for Basel III