Basel III and the New Regulatory Framework

3 days 6-8 Nov 2017, London UK £3,645.00 + VAT* Download brochure Add to basket

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Towards the end of 2008, following the Western banking crisis, the Basel Committee announced a full-scale review of the banking control framework. This resulted in four major categories of change:

  • Banking regulation: the rules became much more demanding and stricter
  • Banking supervision: these was a global move away from banking regulation, with a heavy reliance on rules, towards more proactive and intrusive banking supervision
  • Supervisory expectations: in certain aspects, the rules themselves did not change, but the interpretation and general observance became considerably more demanding
  • Governance: it was generally held that weak bank governance, namely the pursuit of short-term gains at the expense of longer-term risks, lay at the heart of the recent crisis. Changes in governance were deemed to be essential – but how?

As a result, during the subsequent years, the industry has been flooded with proposals, consultative papers, impact studies, and firm decisions, and the process has not yet slowed down. This 3-day course is designed to discuss all of these various changes, and, more particularly, their impact on the banks and their business models, their customers and indeed on the banking supervisors.

In more detail:

·   The evolution of the Basel II rules for bank capital: changes to both the quality and quantity

·    Regulatory updates for Pillar 1 risks: credit, traded market risk, counterparty credit, and operational
Comparing Dodd-Frank rules for credit risk with the new (2016) Basel rules
Changes to both the Standardised and Advanced (Internal) approaches

·   Introduction of a new Standardised approach for IR risk in the Banking Book

·   Impact of the new Leverage constraint

·   Impact of the new Liquidity requirements, especially the Net Stable Funding Ratio

·   An outline of the changes in the Securitisation framework

·   How to formulate and articulate stress tests in the new environment

·   Changes to the ICAAP – setting of risk appetite – and the disclosure requirements

·   The ongoing shift from Regulation to Supervision

·   How does CRD IV (the European version) differ from Basel III

·   Governance: what is meant by a Risk Culture, and how can it be implemented?
What is the role of the Board of a bank?
Who should be on the Board: skills and time requirements
Board Risk Committees

But it is simple to describe narrowly the changes in regulation. This workshop goes much further, to discuss the likely effects of all these changes on the international banking business models, and therefore on other banks and bank customers.

And further still – what is a bank? Are they likely to facing competition from other organisations, which are not governed by banking regulation? Ultimately, what will the banking sector look like in 10 years time??

By attending this intensive 3-day course you will learn:

  • The evolution of the Basel II rules for bank capital: changes to both the quality and quantity
  • Regulatory updates for market, credit, and counterparty risks
  • The big omission: what will happen to the rating agencies?
  • Impact of the new Leverage and Liquidity constraints
  • How to formulate and articulate stress tests
  • Changes to the ICAAP
  • How does CRD IV (the European version) differ from Basel III
  • The likely effects of “Basel III” on the international banking business models, and therefore on other banks and bank customers
  • Where does banking regulation go after this?

Teaching Methodology

This will be a mixture of traditional teaching, combined with case-studies and computer demonstrations.

Who should attend

  • Board members with risk responsibilities
  • CROs and Heads of Risk Management
  • Members of the Risk Management team
  • Compliance, legal and IT support staff
  • Central bank staff and supervisors
  • Rating Agency Analysts


We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

Dr. Richard Flavell

The course director is a consultant in the financial services industry. Until recently, he was Director of Financial Engineering at Lombard Risk Systems, one of the leading providers of derivative trading systems around the world. In this role he led a team responsible for the mathematical development of Lombard’s derivative trading and risk management systems. At the same time, he also undertook extensive client/product training and consultancy projects.

Prior to his role at Lombard Risk, he was Head of Financial Engineering at ANZ Merchant Bank in London, and was Reader in Finance at The Management School, Imperial College, which is part of the University of London. He has worked with many banks and financial institutions around the world, advising them on their derivative and risk management activities. He has an international reputation for his expertise in swaps, other derivatives and risk management.

He has also published widely in both academic and professional literature, his most recent book on Swaps and other Derivatives was published in December 2009, and he is currently writing a book on bank risk management. His approach to training is structured and practical. He has extensive experience and success in teaching both recent entrants to the derivatives markets and risk management, as well as highly experienced technical experts and market participants.



Central London Hotel Venue

All courses are held at four or five star venues in Central London, Zone 1. We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

Your training venue will be confirmed by one of our course administrators approximately 3-4 weeks before the course start date.

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To find out more about running this course in-house:

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We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.


We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:

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Day 1

Brief Overview of Events before and During the Banking Crisis

  • Brief overview of Credit Risk under Basel I
     - What were the main impacts?
  • Securitisation and the mortgage markets
     - CDO markets, super senior tranches, the chase for yield, and the role of the rating agencies
     - Gain-on-Sale accounting and mark-to-market valuation
  • Reliance on whole-sale funding and the creation of funding liquidity risk
  • Use of structured investment vehicles and implicit support
     - Impact on the interbank markets
  • Limitations in stress testing
  • Procyclicality
  • Deficiencies in senior and risk management oversight

This section will be reinforced with some case-studies discussing what happened in specific organizations such as Sachsen LB, Royal Bank of Scotland, Halifax Bank of Scotland, as well as the US investment banking sector generally.

Changes to Capital itself

  • What are some of the major problems with the current definition?
    - Was capital truly loss absorbent?
  • An outline of the proposed changes
    - Concept of “going” and “gone” concerns
    - Removal of hybrid securities
    - Introduction of Common Equity Tier 1 and Additional Tier 1
    - Regulatory adjustments
    - Elimination of Tier 3 and harmonisation of Tier 2
    - Contingent convertibles and similar structures
    - Introduction of the “bail-in” clauses and PONV for all capital
    - What happened during the Cypriot crisis
    - Harmonisation with IFRS
    - Final percentages and the transition timetable
  • Conservation Capital Buffer
    - How the CCB will work, and will it reduce pro-cyclicality?
  • Counter-Cyclical Capital Buffers
    - The broad intention – and the current proposals?
             Early warning signs of a boom-bust cycle
             Estimation of credit to GDP and other measures for each jurisdiction
    - Estimation of capital buffers
    - Home-host responses
  • Systemically Important Banks – global, regional and domestic
     - TLAC proposal by Financial Stability Board
  • What is the overall likely impact on the banking business mode
    - A view from the Bank of England

Changes to the Regulation of Credit, Traded Market and Operational Risk

There are two approaches to the setting of capital for the above Pillar 1 risks, namely Standardised approach(es) and Advanced (or Internal) approach(es). Since the recent crisis, these have all significantly changed, some very recently.
Credit risk

  • The Standardised approach under Basel II using external credit ratings (ECRs)
     - The removal of ECRs in the new US regulations – a 3-indicator methodology
     - Proposed changes in Dec 2014, and the re-proposal of Dec 2015
     - Changes to Property-based lending and to the Credit Conversion Factors (CCFs)
  • The Advanced (IRB) approaches under Basel II
     - Why these may be scrapped for low default probability entities?
     - What are the possible alternative approaches?
     - Introduction of parametric floors
  • What is the likely impact on the banking business model?

Market Risk
Why has traded market risk been highlighted as requiring attention?

  • Reviewing the boundary between banking and trading – some proposals
  • The proposed new Standardised approach
     - A worked example of the calculations incorporating IR, credit and FX risks
     - What is the likely impact?
  • Introduction of Stressed VaR into the Advanced approach
     - How is this to be calculated, and what is the estimated impact?
     - The shift to Expected Shortfall, and to varying holding periods
  • What is the likely impact on the banking business model?
  • Counterparty credit risk (also known as Credit Valuation Adjustment or CVA)
     - The starting position: Basic, Standardised and Advanced approaches
     - The recent proposals: scrapping the Advanced approaches
     - The more recent proposals: scrapping the Standardised approach 
     -  An example of the calculations underpinning the Basic approach
     - Introduction of centralized clearing
     - What is the likely impact on the banking business model?

Operational Risk

  • Replacement of all approaches by a single Business Indicator approach
     - Why, and the likely impact?
     - Modification by including the Loss Component
     - An example of the calculations for two different banks

Day 2

Changes to the Regulation of IR Risk in the Banking Book (IRRBB)
For regulatory purposes, IRRBB is currently treated under Pillar 2, namely there are no regulatory models; banks have to develop their own internal models. It is proposed to introduce a Standardised approach for IRRBB which, if adopted, would eventually move into Pillar 1.

  • Description of the proposed Standardised approach, with a worked example
  • How to handle “difficult” products, such as ones with embedded behavioural options

Multi-Dimensional Risk Measures

  • Is capital the only mitigant?
  • Introduction of a “non-risk-weighted” leverage constraint
    - Background: the US experience
    - Why a leverage constraint is required: the Swiss view
    - What is proposed – how is it likely to work?
    - Potential impact on activities such as Trade Finance
    - The overall timetable for parallel running and future calibration
    - Should this move into Pillar 1?

Introduction of a Liquidity Framework

  • Funding liquidity: what happened during the crisis?
  • Estimation of the Liquidity Coverage Ratio
    - What are eligible liquid assets?
    - Estimation of run-offs – as revised in 2013
    - The supervisory stress test
  • Estimation of the Net Stable Funding Ratio
    - Current 2014 proposals
    - Impact on long-term funding of infrastructure projects
    - The supervisory stress test
  • Changes to the timetable
  • Regulatory metrics to estimate liquidity, and new monitoring tools
  • Introduction of Funds Transfer Pricing and Liquidity Risk premia

Day 3

Changes to the Securitisation Framework

  • What went wrong, and what are the broad intentions?
  • Dodd-Frank Act of July 2010
  • Recalibration of the Supervisory Formula
  • Specific risk charges and SF charges
  • The IOSCO Code of Conduct

Stress Testing

  • What is a stress test?
     - Stress scenarios and shock (or sensitivity) scenarios
  • What happens in times of stress?
  • How was stress testing viewed prior to 2007?
  • How to conduct a stress test?
  • What constitutes a good stress scenario?
     - Building Historic and Hypothetical scenarios 
     - Example: US Stress Scenarios
     - Reverse and Idiosyncratic stress testing
  • Linking stress scenarios to low-level risk drivers
  • How should a bank measure its performance under a stress scenario
  • What are the management messages from stress tests?
     - Senior management responses to stress tests
     - Supervisory responses to stress tests
  • Regulatory stress tests: results from US, UK and European tests

Other Changes to Pillars 2 and 3

  • Increased focus with Pillar 2
    - Changing emphasis for the ICAAP
    - How the SReP may be adjusted – shifts to risk-based supervision
    - How will this change the supervisory process
    - What changes are required within the banking supervisory
  • Revised disclosure requirements under Pillar 3
  • Changes to margining
  • Possible changes to accounting provisioning
  • Concerns:
    - Speed of national implementation
    - US

Basel III and CRD IV

  • What are the main differences

Corporate Governance

  • Lessons from the crisis
  • Getting the basics right
  • Continual risk monitoring
  • Enhanced oversight – the role of the Board Risk Committee

Changes to the Supervisory Process

  • Introduction of Risk-Based Supervision
  • How will this change the supervisory process
  • What changes are required within the banking supervisory

Overall Impact on the Banking Business Model

  • Likely changes to the banking product mix
  • Likely changes to pricing
  • Summary: some political views on Basel III

Summary of Course

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