Counterparty credit risk (CCR) continues to be one of the most important challenges in today’s financial markets. Since the financial crisis, the regulatory landscape has undergone significant change with associated impacts on your financial institution. All end-users of derivatives...
Counterparty credit risk (CCR) continues to be one of the most important challenges in today’s financial markets. Since the financial crisis, the regulatory landscape has undergone significant change with associated impacts on your financial institution. All end-users of derivatives and securitization products are affected by these changes.
Join us to explore the key areas of modern CCR assessment, measurement, management, and reporting and disclosure. Delve into the latest regulatory developments under Basel III and methods used to measure and mitigate CCR. Subjects are relevant for all banks using OTC derivatives and securitization in their treasury and/or capital markets/trading units.
Who will benefit?
The course will benefit banking professionals from banks of all sizes in the following functions:
- Counterparty risk management.
- Credit risk management.
- Capital markets and trading.
- Product control.
- Management/financial accounting.
- Critically look at the risks in the business and how they can be managed and controlled.
- Learn how to assess, measure, and manage counterparty credit risk and risk from securitization business.
- Understand the newest regulatory requirements for counterparty credit risk and their impact on banking organizations.
- Learn how to assess gaps within your institution and design an optimal counterparty credit risk framework.
- Be aware of counterparty credit risk and securitization disclosure requirements and an ideal risk report for your institution.
- The global financial crisis: a brief review.
- The OTC derivatives market:
- Market size.
- Market participants.
- Definitions and risk types.
- CCR elements – overview.
Overview of the Regulatory Landscape
- Key elements of Basel III:
- Capital elements.
- Risk-weighted assets.
- Capital ratios.
- Leverage ratio.
- Liquidity and funding.
- CCR relevant issues under Basel III:
- Credit value adjustments.
- Wrong-way risk.
- Stressed potential exposure.
- Increased margin period of risk.
- Collateral management.
- Central clearing.
- Fundamental review of the trading book.
Credit Exposure: Fundamentals
- Key credit parameters:
- Exposure at default (EAD).
- Probability of default (PD) and credit migration.
- Loss given default (LGD) and recovery.
- Expected loss.
- Risk density.
- Mark-to-Market and replacement cost (RC).
- Future exposure:
- Expected future exposure (EFE).
- Potential future exposure (PFE).
- Effective expected positive exposure (EEPE).
- Positive and negative exposure.
- Factors driving exposure.
- Exposure profile interest rate swap.
- Add-ons for future exposure:
- The standardized approach (SA).
- Internal models method (IMM).
- Limits and other risk mitigation techniques.
- The IDSA master agreement and other agreement types.
- Events of default.
- Payment netting.
- Close-out netting.
- Multilateral netting.
- Termination features.
- Impact of downgrading.
- Impact of netting on exposure.
- Credit support annex.
- Initial margin and variation margin.
- Collateral terms:
- Initial margin.
- Linkage to credit quality.
- Mechanics of collateral:
- Collateral call frequency.
- Valuation agents.
- Reconciliation and disputes.
- Title transfer.
- Coupons and dividends.
- Collateral and funding.
- Role of collateral in the Liquidity Coverage Ratio under Basel III.
- Collateral usage.
- Risks involved.
- Impact of collateral on exposure.
- Regulatory requirements:
- General requirements.
- Collateral management under Basel III.
CCR: The Standardized Approach (SA) under Basel III
- General structure and main components:
- Exposure at default.
- Replacement cost.
- Potential future exposure.
- The regulatory alpha factor.
- Framework for add-ons.
- Structure of ad-on calculations.
- Add-on factors by asset class:
- Interest rate derivatives.
- Foreign exchange derivatives.
- Credit derivatives.
- Equity derivatives.
- Commodity derivatives.
- Example of a sample portfolio.
End of Day 1
CCR: The Internal Model Method (IMM)
- Quantifying credit exposure: simulation models and scenario generation:
- Parametric approaches.
- Historical simulation.
- Stressed exposure.
- Limitations of simulation tools.
- Validation and backtesting.
- Model risk:
- Model inventory.
- Model development, implementation, and use.
- Model validation.
- Governance, policies, and review.
Credit Value Adjustments: Capital Charge
- Standardized formula.
- Advance approach.
- Debt value adjustment.
Wrong-way Risk (WWR)
- General and specific WWR.
- WWR challenges.
- Modeling approaches.
Capital Requirements for Exposures to Central Counterparties
- General terms.
- Trade exposures.
- Default fund exposures.
- Exposures to non-qualifying CCPs.
- External validation.
- Operational requirements.
- Due diligence requirements.
- Treatment of securitization exposures:
- Capital requirement and RWAs.
- Hierarchy of approaches.
- Caps for securitization exposures.
Disclosure Requirements (Templates and Frequency)
- Qualitative disclosure requirements related to CCR.
- Exposure at default and risk-weighted assets of CCR:
- By approach.
- By exposure elements.
- Exposure at default and risk-weighted assets of CVA.
- Standardized approach: credit exposure by regulatory portfolio and risk weights.
- Internal model method:
- Credit exposure by regulatory portfolio and risk weights.
- Exposure by portfolio and PD scale.
- Composition of collateral for CCR exposure.
- Credit derivatives exposure.
- RWA flow statement for CCR.
- RWA flow statement for CVA.
- Exposures to central counterparties.
- Qualitative disclosure requirements related to securitization.
- Securitization exposures in the banking book.
- Securitization exposures in the trading book.
- Capital requirements.
- Case study international bank(s).
End of Program