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 Section 25a (1) of Banking Act (KWG) Central provision: institutions have to dispose of a proper business organisation  Adequate risk management This comprises:  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 Structural requirement Processual requirement Organisational and operational Processes to identify, assess, control, structure: monitor and communicate risks Clear Segregation of areas of (in accordance with Annex V of CRD) responsibility Where to find the KWG? (German version only)  http://www.bundesbank.de/download/bankenaufsicht/pdf/kwg_0407.pdf Dr. Tobias Volk, LL.M.oec Chicago November 10, 2011 Seite 2

Concepts of risk bearing capacity in German banks Overall principle under Pillar 2 of Basel II/III AT 4.3.2 MaRisk: Coverage of all AT 4.3.2 MaRisk: Processes for material risks material risks Monitor and Total Identify Communicate Risks Busi- Credit Market Op. further ness Risk Risk Risk Risks Risk Treat Assess Counter- Transfer Trading ALM Risk party Risk Risk Risk − Appropriate processes − Appropriate scenarios Desk 1 Desk 2 Desk 3 − Appropriate intervals for management Risk Risk Risk reporting Dr. Tobias Volk, LL.M.oec Chicago November 10, 2011 Seite 3

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 Dr. Tobias Volk, LL.M.oec Chicago November 10, 2011 Seite 4

Concepts of risk bearing capacity in German banks Quality and sophistication of ICAAP in German banks Clustering of ICAAP methodologies and categorization of banks Quality of ECap 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 Sophistication of ECap ICAAP solely based on Pillar 1+, quality of implementation differs a lot Size of asterisk = size of bank (Assets) Dr. Tobias Volk, LL.M.oec Chicago November 10, 2011 Seite 5