17th Annual Capital Markets Conference Concepts of risk bearing - - PowerPoint PPT Presentation

17th Annual Capital Markets Conference

Concepts of risk bearing capacity in German banks

• Dr. Tobias Volk, LL.M.oec

Concepts of risk bearing capacity in German banks Overall principle under Pillar 2 of Basel II/III

November 10, 2011 Seite 2

• Dr. Tobias Volk, LL.M.oec

Chicago

Structural requirement

Organisational and operational structure: Clear Segregation of areas of responsibility

Processual requirement

Processes to identify, assess, control, monitor and communicate risks (in accordance with Annex V of CRD)

Section 25a (1) of Banking Act (KWG)

Central provision: institutions have to dispose of a proper business organisation This comprises:  Adequate risk management  on the basis of processes to assess and maintain ability to bear its risks  Definition of strategies  Establishment of adequate internal control systems  Internal Audit

Where to find the KWG? (German version only)  http://www.bundesbank.de/download/bankenaufsicht/pdf/kwg_0407.pdf

Concepts of risk bearing capacity in German banks Overall principle under Pillar 2 of Basel II/III

November 10, 2011 Seite 3

• Dr. Tobias Volk, LL.M.oec

Chicago

AT 4.3.2 MaRisk: Coverage of all material risks AT 4.3.2 MaRisk: Processes for material risks

Identify Assess Treat Monitor and Communicate − Appropriate processes − Appropriate scenarios − Appropriate intervals for management reporting

Total Risks

Credit Risk Market Risk Op. Risk Busi- ness Risk Counter- party Risk Transfer Risk Trading Risk ALM Risk further Risks Desk 1 Risk Desk 2 Risk Desk 3 Risk

Concepts of risk bearing capacity in German banks Supervisory specification within the SREP

• Deductions from Available Financial Resources under Pillar 2
• Hidden burdens (Government/Municipals !)
• Deferred tax assets
• Goodwill
• M-t-M treatment of own credit risk not allowed under Pillar 2
• Diversification assumptions have to be stable over a period of one

business cycle or to be used with an appropriate buffer

• Risk horizon generally one year with exceptions in market risk if

institution can justify management intervention

November 10, 2011 Seite 4

• Dr. Tobias Volk, LL.M.oec

Chicago

Concepts of risk bearing capacity in German banks Quality and sophistication of ICAAP in German banks

November 10, 2011 Seite 5

• Dr. Tobias Volk, LL.M.oec

Chicago

Clustering of ICAAP methodologies and categorization of banks Sophistication of ECap Quality of ECap

Size of asterisk = size of bank (Assets)

Ahead of the market Top Tier Banks: Highly sophisticated ECap management with a high quality of implementation Wanna do‘s Tier 2 banks: Have the ambition but not the ability to implement highly sophisticated ECap management – quality issues Small but beautiful Larger regional banks/Private banks: Less sophisticated ECap/ICAAP based on Pillar 1+ approach, but high quality of implementation The broad mass ICAAP solely based on Pillar 1+, quality of implementation differs a lot