Basel III, Risk Assessment and Stress Testing

Course Information

  • the date

14/07/2025

  • Duration

5 days

  • The city

Paris

  • Cost
  • Type

in-house

Course details

Basel III is a global regulatory standard on bank capital adequacy, stress testing, and market liquidity risk. It requires banks to use quantitative methods for risk projection and economic capital forecasting, and report results across the organization. Basel III is the third set of reform measures agreed upon by the Basel Committee on Banking Supervision.

In this course, there will be an in-depth analysis of why stress testing is vitally important to financial institutions, how to conduct stress testing, and why financial regulators are so preoccupied with stress testing in the post-2008 financial environment.

In particular, there will be an analytical examination of the kinds of scenarios that can lead to extraordinary credit losses, operational losses, and liquidity stress and can even threaten the survival of financial institutions.

This course is designed as an intermediate level in-depth look at the key provisions of the Basel III regulatory framework, the ongoing risk assessment practice within banks, and the vital role of stress testing.

Upon completion, participants will have a comprehensive understanding of internal risk assessment as required under Basel III and especially with reference to the ICAAP process.

بحلول نهاية الدورة، سيكون المشاركون قادرين على:

تطوير فهم عميق للعناصر الرئيسية ضمن الإطار التنظيمي لبازل 3

فهم المقاييس والإجراءات الرئيسية لتقييم مخاطر الائتمان ومخاطر السوق ومخاطر التشغيل

فهم الأهمية الحيوية لاختبار الإجهاد باعتباره حجر الزاوية لإدارة المخاطر

تطبيق المهارات التحليلية لتحديد تركيز مخاطر الائتمان وتركيز مخاطر التمويل ومخاطر السيولة النظامية

تطوير وصياغة الإجراءات والسياسات فيما يتعلق بأفضل ممارسات تنفيذ نمذجة الإجهاد وبروتوكولات إدارة المخاطر المرتبطة بها

دورة تقييم المخاطر واختبار الإجهاد وفقًا لبازل 3 مناسبة لـ:

جميع العاملين في قطاع الخدمات المصرفية، بما في ذلك مديري الثروات، والمدققين، ومحترفي مراقبة الخزانة والمنتجات.

Course outline

Introduction to Basel III and Regulatory Bank Capital

  • Overview of bank financial statements and accounting principles
  • Basel framework introduction and its evolution: Basel I, Basel II, Basel III, etc.
  • Definition of regulatory bank capital and why it is important
  • Defining regulatory capital types under Basel III:
  • Tier 1 capital
  • Tier 2 capital
  • Understanding regulatory capital requirements under Basel III:
  • Minimum capital ratios and risk-weighted assets (RWA)
  • Capital conservation buffer
  • Countercyclical buffer
  • Leverage ration
  • Liquidity requirements
  • Systemically important banks (SIBs)
  • Discussing regulatory bank capital issues and the effects of liquidity and solvency issues

Market and Operational Risk

  • Definition of market risk and the importance of separating trading book from banking book
  • Examining how Basel III refined the market risk framework:
  • Standardized approach (SA) for market risk
  • Internal model approach (IMA) for market risk: Value at Risk vs. Stresses Var (sVaR)
  • Higher capital for securitized products
  • Capital buffers for market risk
  • Understanding how off-balance sheet exposures and how Basel III addressed it
  • Definition of operational risk and the differences between non-credit and non-market risks
  • Exploring the three methods of calculating operational risk capital under Basel II:
  • Basic indicator approach (BIA)
  • Standardized approach (SA)
  • Advanced measurement approach (AMA)
  • Understanding Basel III operational risk capital requirements:
  • Elimination of AMA
  • Introduction of the standardized measurement approach (SMA)
  • Understanding loss distribution approach (LDA) and scenario-based analysis (SBA) methods for supporting operational risk quantification

Credit Risk and Basel III's Role in Stress Testing

  • Exploring alternatives to external credit ratings used to reduce dependence on external ratings:
  • Internal ratings-based (IRB) approach
  • Credit default swaps (CDS) and market-based indicators
  • Financial statement analysis and credit scoring models
  • External data from regulatory and industry reports
  • Identifying key drivers for credit concentration risks, and how its addressed in the Basel III capital framework
  • Understanding the Basel III large exposures framework (LEF) and its risk mitigation measures
  • Introduction to stress testing under Basel III: its types, requirements, and types of risk tested
  • Understanding the backtesting methodology and its role in validating stress test models
  • Discussing the limitations of stress testing models

Counterparty Credit Risk (CCR), Liquidity Risk, and Stress Testing Frameworks

  • Understanding the nature of counterparty credit risk (CCR) and the mechanisms introduced by Basel III to address CCR
  • Exploring drivers of CCR under Basel III:
  • Counterparty default probability (PD)
  • Exposure at default (EAD)
  • Recovery rate
  • Margin requirements
  • Understanding liquidity coverage ratio (LCR) formula and component:
  • High-quality liquid assets (HQLA)
  • Net cash outflows
  • Explaining net stable funding ratio (NSFR) and its components:
  • Available stable funding (ASF)
  • Required stable funding (RSF)
  • Understanding credit value adjustment (CVA) and its risk capital charge under Basel III
  • Discussing the role of collateral in CVA management and types of collateral used for CVA reduction
  • Discussing LCR and CVA requirements and implementation under Basel III

Basel III Implementation and Impact on Banking Business Model

  • Discussing key areas of Basel III impact on banking business models:
  • Capital structure and profitability
  • Changes in lending and credit allocation
  • Liquidity and funding strategy
  • Market risk and trading activities
  • Cost of compliance and technology investments
  • Analyzing long-term structural changes in banking after the adaptations of Basel III
  • Identifying the key components of Basel III implementation: Governance, Risk assessment systems, Data management
  • Understanding regulatory reporting requirements for Basel III compliance:
  • Capital and risk reporting
  • Liquidity and funding reporting
  • Stress testing and scenario analysis reporting
  • Addressing challenges in Basel III implementation and reporting
  • Discussing future trends in Basel compliance systems

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