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Adapting to Basel III and the Financial Crisis

Adapting to Basel III and the Financial Crisis Re-engineering capital, business mix, and performance management practices

Author: Bogie Ozdemir; Peter Miu
Publisher: Risk Books
ISBN: 9781782720003
Published In: January 2013
Format: Paperback , 295 pages
Jurisdiction: International ? Disclaimer:
Countri(es) stated herein are used as reference only

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The financial crisis that began in 2007 has led to a sea-change in the regulation of the banking and insurance sectors. The impact of the economic environment and the regulatory changes on financial institutions is unprecedented. In response to the deficiencies in financial regulation revealed by this crisis, the Basel Committee on Banking Regulation set their global regulatory standards for banks in stone in the form of the Basel III guidelines, published in December 2010.

Insurance companies, which are increasingly regulated like banks, will be implementing the Solvency II Directive (considered the equivalent of the Basel guidelines) in 2014. Both the banking and insurance sectors will be affected by Phase II of The International Financial Reporting Standard (IFRS), providing common ground between the two. Adapting to Basel III and the Financial Crisis presents an integrated view of these two industries, providing the reader with a comprehensive guide to the complexities of the new regulations while focusing on solutions rather than problems.

As a result of Basel III and Solvency II, all financial institutions will have to re-think their business planning and strategic management practices whilst also trying to meet their income needs.  Adapting to Basel III and the Financial Crisis examines how the financial sector is tackling these challenges, drawing on a variety of examples from the banking and insurance industries.

Bogie Ozdemir and Peter Miu combine their experiences in banking, insurance, and academia, providing a balanced combination of both hands-on experience and theoretical reasoning. The authors demonstrate how best to implement these regulations on a practical level, explaining the organizational (re)alignments to ensure that the necessary changes are made.

The authors equip the reader with the tools to enhance their capital management and business mix optimization processes in order to cope with the rigors of the new regulatory landscape, with key topics including:

•   Integrated Capital Management;
•   ICAAP and ORSA Design;
•   Risk Appetite;
•   Economic Capital for Defaulted Loans;
•   Performance Management;
•   Capital Planning and Budgeting;
•   Economic Capital for Insurance Companies;
•   RAROC and Loan Specific Hurdle Rate;
•   Evolving Role of the Risk Function and Organization Re-design; and
•   Procyclicality Management.

Adapting to Basel III and the Financial Crisis is aimed at all risk and capital management practitioners in banks and insurance companies, as well as national and international regulators of financial institutions and Basel II, Basel III, and Solvency II implementing practitioners.

Introduction

1. Environmental Forces: uniqueness of the last financial crisis, change in demographics and regulatory requirements

2. Current Practices and their Shortcomings in Capital, Business Mix and Performance Management

3. Evolution of Economic Capital Measurement and Management

4. Integrated Capital Management

5. Procyclicality Management

6. Capital Optimization and Business-Mix Management

7. Performance Management and Hurdle Rate

8. Organizational (Re)alignment

Bogie Ozdemir is the Vice President of Sun Life Financial Group, responsible for the Enterprise Economic Capital, Operational Risk, Model Vetting, Risk Analytics, Risk Policy, and Economic Scenario Generation groups. Until recently, he was the Vice President of BMO Financial Group where he was responsible for Economic Capital, Stress Testing, and Basel Analytics, and jointly responsible for ICAAP. Previous to this he was the Vice President of Standard & Poor’s Credit Risk Services group where he was globally responsible for engineering new products and solutions, and business development and management.

He has co-authored many papers such as “Practical and Theoretical Challenges in Validating Basel Parameters: Key Learnings from the Experience of a Canadian Bank” and “Basel Requirement of Downturn LGD: Modeling and Estimating PD & LGD Correlations” both published in the Journal of Credit Risk, “Estimating and Validating Long-Run Probability of Default with respect to Basel II Requirements”, published in the Journal of Risk Model Validation in 2008, and more recently “Information asymmetry and bank regulation: Can the spread of debt contracts be explained by recovery rates?”, published in the Journal of Financial Intermediation in 2012. In 2008, Bogie also co-authored a book titled Basel II Implementation: A Guide to Developing and Validating a Compliant, Internal Risk Rating System.

Dr. Peter Miu's research is primarily in the areas of credit risk modeling, bankruptcy prediction, financial institutions, risk management, exchange-traded funds, empirical methods, and investments. His research has been published in various journals such as the Journal of Financial Intermediation, Journal of Banking and Finance, Journal of Empirical Finance, Journal of Financial Research, and Journal of Credit Risk. Dr. Miu has written extensively on issues related to Basel II. His co-authored 2008 book Basel II Implementation: A Guide to Developing and Validating a Compliant, Internal Risk Rating System provides both the theory and practical how-to knowledge risk management professionals need to implement the concepts of Basel II in their institutions.

Dr. Miu is an Associate Professor of Finance at the DeGroote School of Business, McMaster University, where he teaches courses in financial economics and international financial management. He has consulted on such issues as validations of credit risk measures, Basel II implementation, and stress testing models. Dr. Miu holds an MBA and Ph.D. in Finance both from the Rotman School of Management, University of Toronto.