Basel Accords Group: Flávio Guimaraes Pierobon Shirokova Ekaterina

Basel Accords Group: Flávio Guimaraes Pierobon Shirokova Ekaterina Hochschule Pforzheim University 2011

Basel Accords Basel I (1988) Minimal requirements (focus on credit risk) Basel II (2004) 3 main pillars Basel III (2010) Response to the Global Financial Crisis

Basel I The Herstatt Bank Liquidation (1974) Enforced by the G-10 Basel Comittee on Banking Supervision Basel II - Established on 1988 Sets a Minimal Capital Requirement for Banks Outdated to the financial market

Basel II: Pillars Minimun Capital Requirements Supervisory review Market Discipline

Minimum Capital Requirements Credit Risk Standardized Approach External Credit-Rating Agencies «Internal ratings-based» (IRB) approach Individual bank`s methodics

Minimum Capital Requirements Operational Risk Standardized Approach External Credit Rating Agencies Basic Indicator Approach (Average of the last three years gross income) x 0.15 Advanced Measurement Approach (AMA) Own Empirical Model Section 664 of Basel II sets specific requirements

AMA Minimal Requirements Directors & Senior Managers actively involved Solid Operational Risk Management System… … and implemented with integrity Sufficient Resources

Minimum Capital Requirements Market Risk Value at Risk (VaR)

Supervisory review Involves a Framework Objective: dealing with other kinds of risk Gives the Opportunity to Review the AMA

Market Discipline (Expanded Disclosure) Transparency Share of Information Disclose Details Consequence: Risk-Awareness in the Market

IT-Infrustructure Collection of information Integration of Information IT security

Basel III Response to the 2008 Financial Crisis Requirements: Hold 4,5% of Common Equity Hold 6% of Tier Capital 2,5% Capital Compulsory Retain Additional 2,5% Capital at high Credit-Growth Periods

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