Basel II: Application for banks

Market and legal aspects

Course objectives

  • Master bank financial statements and specific risk universe
  • Evaluate impacts of Basel 2 on balance sheets
  • Understand limitations of Basel 2 and roadmap to Basel 3

How to read a bank's financial statements

  • Balance sheet : assets on one side and financing on the other
  • Asset and Liability Management : definition and objectives
  • Analysis of a Profit & Loss statement and ratio analysis, solvency and profitability
  • Impact on a bank's balance sheet of the following activities :
    • Prop trading and banking book
    • Asset management
    • Retail banking
  • Methodologies for equity requirement
  • Situation of banks post-2008

Risks for a bank

  • Gap risk and liquidity crisis :measuring and managing liquidity risk
  • Interest rate risk
  • Definition of market risk and introduction to VaR
  • Credit and counterparty risk
  • Operational risk: definition and examples

Basel 2 : principles, application and consequences

  • Principles for capitalisation
  • Objectives of pillars
    • Basel 2 ratios
    • RAROC
    • Cost of risk Choices to make for managing bank risk
  • Impact on Information systems Impacts on banks and ALM

Case study: 2008 and the limitations of Basel 2 in the open

Roadmap to Basel 3

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