BASEL II OVERVIEW

FEBRUARY 2017
BASEL II INTRODUCTION
BASEL – BACKGROUND
3

BASEL I BASEL II BASEL III Post Basel III (BASEL IV )

Issued 1988 Issued 2006 Issued 2010 After 2012

u In the early 1980s, the u Designed to improve u Banking sector had u Some countries are
onset of the Latin the way regulatory entered the financial already starting to
American debt crisis capital requirements crisis with too much execute capital
heightened the reflect underlying leverage and requirements that go
Committee’s concerns risks and to better inadequate liquidity beyond current Basel
that the capital ratios address the recent buffers. III. Particularly, the US
of the main financial innovation. and some Europe
international banks u These defects were countries are
were deteriorating at a u The changes aimed at accompanied by poor demanding banks to
time of growing rewarding and governance and risk meet minimum capital
international risks. encouraging management, as well ratios even after the
continued as inappropriate effect of severe stress.
u Designed to achieve improvements in risk incentive structures.
greater convergence in measurement and u UK and Switzerland
the measurement of control. u The dangerous have set a minimum
capital adequacy. combination of these level of leverage ratio
u Also to develop and factors was at above 3%; other
u Results in broad expand the demonstrated by the countries, are
consensus on a standardized rules set mispricing of credit contending that “Pillar
weighted approach to out in the 1988 and liquidity risk, and 2” add-on capital are
the measurement of Accord. excess credit growth. met through highest
risk, both on and off quality capital.
banks' balance sheets.
BASEL – KEY CONTENTS
4

BASEL I BASEL II BASEL III Post Basel III (BASEL IV )

Issued 1988 Issued 2006 Issued 2010 After 2012

u Focus on a single risk u Establish fixed risk u Focussing on u Restricting the

measure (Credit Risk) weights corresponding strengthening existing advantages to banks of
to each supervisory capital requirements using internal models to
u Insufficiently sensitive category and makes and accompanying calculate their capital
to risk (broad use of external credit liquidity concerns requirements
categories) - One size assessments
fits all u Introducing Liquidity u Requiring banks to meet
u Greater use of Coverage Ratio (LCR) a higher minimum
u Did not allow for use assessments of risk and Net Stable Funding leverage ratio
of Credit Risk provided by banks’ Ratio (NSFR)
Mitigation techniques internal systems as u Greater disclosure by
such as Collateral, inputs to capital u Capital requirements for banks
Guarantees etc. calculations CCR based on stressed
inputs
u Introduced Minimal u Introduced capital
Capital Requirement charge for Operational u Introducing bank
pillar of at least 8% of Risk liquidity and bank
its risk-weighted leverage
assets for sum of Tier u Introduced 2 new
1 and Tier 2 capital pillars u Introducing Capital
Conservation Buffer and
u Did not assess market u Supervisory Review countercyclical buffer
risks - these came in Process (Pillar 2)
the 1996 Market Risk u Introducing
Amendment u Market Discipline methodology to identify
(Pillar 3) global systemically
u Operational risks were important financial
ignored as a specific institutions (SIFIs)
risk category
THE 3 PILLARS OF THE BASEL II ACCORD
5

Pillar 1 – Minimum Capital

Pillar 2 – Supervisory Review Process Pillar 3 – Market Discipline
Requirements

Minimum Capital Requirement Capital Adequacy Assessment General Considerations

q Credit Risk § Board and Senior Management § Guiding Principles

§ Standardized approach Oversight § Interaction with Accounting
§ Foundation internal ratings § Sound Capital Assessment and Disclosures
Planning
based (F-IRB) approach
§ Comprehensive Assessment of
§ Advanced IRB (A-IRB)
Risks Disclosure Requirements
approach
§ Monitoring and Reporting
q Market Risk § Internal Control Review § General
§ Standardized approach (SA) § Scope of Application
§ Internal methods approach § Capital Structure
(IMA) § Capital Adequacy
Supervisory Review Process
§ Credit Risk
q Operational Risk § Annual comprehensive ICAAP § Market Risk
§ Basic indicator approach Review § Operational Risk
(BIA) § Stress Testing Review § Liquidity Risk
§ Standardized approach (SA) § Material Risks Review § Interest Rate Risk
§ Standardized Measurement
§ Other Material Risks
Approach (SMA)
BASEL II PILLAR 1 OVERVIEW
 CREDIT RWA CALCULATION
7

Total Capital
Bank’s capital ratio = ³ 8.00%
Credit RWA + Market RWA + Operational RWA

Standardised Approach Internal Rating Based (IRB) Approaches

• Classification of credits • Classification of credits and Internal rating of credit quality

• External rating of credit quality • Allocation to risk classes
• Allocation of fixed weights to each category • Calculation of risk parameters per counterparty / exposure
• Calculation of credit risk as the sum of the • Probability of default (PD) - What is the likelihood that a borrower defaults?
product of each exposure and respective • Loss given default (LGD) - How much of the exposure will be lost in event of
weight default?
• - Exposure at default (EAD) - What is your exposure to the borrower in case of
default?
• Quantification of credit risk as a function of PD, LGD, EAD, CCF, credit risk
mitigation and effective maturity.
• Only applied for certain exposure (new guideline issued on Mar 2016) (i.e. Not
applicable for sovereign, banks, large corps, etc.)

AAA A+ BBB+
... IRB Foundation Approach IRB Advanced Approach
to AA- to A- to BBB -
Sovereigns 0% 20% 50% ... • Individual derivation of PD of • Individual derivation of PD, LGD,
Banks Option I 20% 50% 100% ... each risk class and EAD for each risk class
Option II 20% 50% 50% ... • LGD, EAD and time to maturity • Consideration of time to maturity
Corporates 20% 50% 100% ... given by supervisory authorities of each credit exposure
 MARKET RWA CALCULATION
8

Total Capital
Bank’s capital ratio = ³ 8.00%
Credit risk + Market risk + Operational risk

Standardized Approach Internal Models Approach

Under this method market risk capital requirements are fixed This method allows banks to use risk measures derived from their
based on predefined tables depending upon whether the own internal risk management models, subject to seven sets of
exposures are: conditions, namely:
• Long or short positions • certain general criteria concerning the adequacy of the risk
• Physical or derivative positions management system
• Interest rate, Equity position, FX, Commodity or Option • qualitative standards for internal oversight of the use of
risks models, notably by management
• Subject to instrument specific or general market risks • guidelines for specifying an appropriate set of market risk
• Instrument maturity factors (i.e., the market rates and prices that affect the value
of banks' positions)
• quantitative standards setting out the use of common minimum
statistical parameters for measuring risk
• guidelines for stress testing
• validation procedures for external oversight of the use of
models
• rules for banks which use a mixture of models and the
standardized approach
 OPERATIONAL RWA CALCULATION
9

Total Capital
Bank’s capital ratio = ³ 8.00%
Credit risk + Market risk + Operational risk

Basic Indicator Approach Standardized Approach Standardised Measurement Approach*

Operational risk seen as Operational risk seen as The SMA combines the Business Indicator (BI), a simple
linear function of one linear function of unique financial statement proxy of operational risk exposure, with
unique risk measure (Gl) risk measures GEl1-8) per bank-specific operational loss data (should use 10 years of
per bank: business unit: good-quality loss data or minimum of five years of data).
KSTA = S(GI1-8 * b1-8)
KBIA = GI * a with
with b= fixed percentage, set by
KBIA = capital charge Committee, for each of the
GI = exposure indicator, 8 business lines
provisionally average
gross income over past Alternative Standardized
3 years Approach allows for
a = fixed percentage, special treatment of retail
set by Committee,
relating the indus-
and commercial banking:
try-wide level of KIRB = ßRetailBk. * m * LARetail Bk.
required capital to with
the industry-wide ßRetailBk. = beta of business line
level of the indicator - LARetailBk= loans and advances
actually 15% m = multiplier (0.035)

*According to d355, Advanced Measurement Approach to be replaced by SMA - the proposed SMA framework would be applied to internationally active banks on a consolidated
basis. Supervisors retain discretion to apply the SMA framework to non-internationally active institutions.
ILDC: Interest, Lease and Dividend Component; SC: Services Component; FC: Financial Component; Avg: Average of the items at the years: t, t-1 and t-2
BASEL II PILLAR 1 – CREDIT RISK STANDARDIZED APPROACH
 CREDIT RWA CALCULATION PROCESS
11
1 2 3 4 5 7
Risk Weight Exposure Credit Risk RWA
SVC Asset Classification
Assignment Calculation Mitigation Calculation

0 Standardized Approach
Foundation 3 4 5 6
Approach CRM &
Internal PD Supervisory Supervisory
determination Supervisory
1 2 Calculation EAD Maturity 7
LGD
CRM CRM
Asset RWA
SVC
Classification Calculation
3 4 5 6
IRB Approach
Internal PD Internal EAD Internal LGD Internal Maturity
Calculation Calculation Calculation Calculation

Advanced CRM CRM

0 u Approach Determination - Defines approach to be adopted (Standardized, Foundation IRB or Advanced IRB) for each credit portfolio

1 u Single View of Customer (SVC) - Creates a consolidated view of all credit exposures to a customer, including identifying material
customer relationships for purposes of defining a customer group
2 u Asset Classification - Identifies the asset class of the exposure
3 u Risk Weight Assignment/ PD calculation: Depends on different methods (SA/ IRB), Risk Weight Assignment (applicable for SA) or Internal
PD calculation (applicable for both F-IRB and A-IRB) will be performed.
4 u Exposure / Exposure at Default (EAD) - Calculates the potential exposure at the point when customer defaults

5 u Credit Risk Mitigation (CRM) - Recognises the mitigating effects of collaterals, guarantees, etc in reducing the exposure amount and /
or LGD
6 u Maturity calculation: Determines Supervisory Maturity (applicable for F-IRB) or internally calculate Maturity (applicable for A-IRB)

7 u Risk Weighted Assets (RWA) Calculation - Calculates the credit RWA of the exposure based on rules specific to the approach adopted
 ASSET CLASSIFICATION
12
Banking Book
Exposure

Non-retail Retail Equity Securitisation Purchased

Exposures Exposures Exposure Exposure Receivables

Sovereign Bank Corporate Residential

Exposure Exposure Exposure Trade Finance Mortgage
Object Finance
Specialised Qualifying
Lending Commodity Finance Revolving

HVCRE
Other Retail
IPRE IRB Exposure Categories
Secured by
Sovereign Bank Corporate
Residential High Risk Other
Exposure Exposure Exposure
Property

Non-central Multi-lateral Retail Off-balance

Government development Securities Firms Past Due
Regulatory sheet
PSEs banks
Secured by
Commercial
Real Estate Standardised Exposure Categories
 KEY PARAMETERS ACROSS APPROACHES
13

Standardized Approaches IRB Approaches

Simple Comprehensive Foundation Retail Advanced

Supervisory Values, dependent on

Customer Risk external ratings
Customer PD Pool PD Customer PD

Eligible Financial Eligible Financial

Eligible Collateral Bank‘s Collateral
Collateral Collateral
Credit Risk Supervisory Risk HairCuts (Collateral, HairCuts (Currency,
Haircuts (Currency, Maturity)
Mitigation weights Currency, Maturity) Maturity)
Exposure LGD Pool LGD Exposure LGD

Effective Maturity Effective Maturity Effective Maturity

Exposure EAD EAD

Exposure
CCF CCF
Calculation
HairCuts (Currency, Maturity) HairCuts (Currency, Maturity)

Capital
RWA x min. 8 %
Calculation
Regulator Defined Internally Calculated
 CREDIT RISK MITIGATION – RESIDUAL RISK
14

E* = MAX {0; [E * (1+HExposure) - C * (1 - HCollateral – HFX)]}

Maturity Mismatch Market Risk

• Exposure and collateral possess a • Value of exposure and collateral

different time to maturity: Usually the depends on different market risk
collateral is not pledged for the life of factors
the exposure
• This can cause a diverging
• This maturity mismatch causes a development of the respective value
forward credit risk
• Application of haircuts to allow for
• Supervisory measures: - volatility of price of exposure
- Collateral must be pledged for - volatility of price of collateral
at least one year - volatility of exchange rate, if
- Consideration of maturity FX-mismatch exists
adjustment:
Adjusted Protection
= C*
= C * (1 - HCollateral – HFX) * t
T

Legend: E* = Exposure value after risk mitigation, E = Current exposure value (before mitigation), C = Current value of collateral received, w = Specific risk weight
 CREDIT RISK MITIGATION – DERIVATION OF HAIRCUTS IN THE
COMPREHENSIVE APPROACH
15

E* = MAX {0; [E * (1+HExposure) - C * (1 - HCollateral – HFX)]}

Standard Supervisory Haircuts Own Estimates Haircuts based on VaR-models

• Derivation based on internal • Use VaR-approach to reflect price

Issue rating for Residual Sovereign Other Issuers
estimates of price and FX volatility volatility of exposure and collateral
debt securities Maturity Issuers - 99th percentile one-tailed of repo-style transactions
t <= 1 yr 0,5 1,0
AAA to AA- 1 yr < t <= 5 yr 2,0 4,0
confidence interval - Repo-style transactions
5 yr < t 4,0 8,0 - Consideration of illiquidity covered by a bilateral netting
A+ to BBB- and t <= 1 yr 1,0 2,0 - Historical observation period of agreement on a counterparty-
unrated bank 1 yr < t <= 5 yr 3,0 6,0
securities 5 yr < t 6,0 12,0 at least 1 year by-counterparty basis
BB+ to BB- 15,0 - - Update at least every 3 months - Requires supervisory approval
Main index equities and gold 15,0
Other equities listed on recognized
• Derivation of haircut for each of internal model according to
25,0
exchanges category of exposure; else 1996 Market Risk Amendment
UCITS / Mutual Funds Highest haircut applicable individually - Same statistical parameters as
Cash in same currency 0,0
- Debt securities are rated BBB- in market risk measurement,
(A-3) or higher except for 5 business day
- Haircuts expressed as percentage
- Haircuts based on 10 day holding period assumption - Categorisation according to holding period
type of issuer or issue, its • Backtesting required
rating, its maturity and its
modified duration
Legend: E* = Exposure value after risk mitigation, E = Current exposure value (before mitigation), C = Current value of collateral received, w = Specific risk weight
CREDIT RISK MITIGATION – TECHNIQUES
16

Collateral
• Financial collateral
• Physical collateral
- Receivables
- Corporate or Residential Real Estate

Guarantees and Credit Derivatives

• Specific characteristics
- Direct claims on protection provider
Credit Risk Mitigation - Explicitly referenced to specific exposures
Techniques - Irrevocable and unconditional
• Certain range of eligible protection providers
- Sovereign entities, PSE, banks and securities firms with lower risk weight
than counterparty
- Other entities rated A- or better

On-Balance Sheet Netting Agreements

Consideration of net exposure of loans and deposits:
• Assets (loans) treated as exposure
• Liabilities (deposits) treated as collateral
CREDIT RISK MITIGATION – TYPES OF COLLATERAL ELIGIBLE
17

Approach Impact on capital charge

Collateral Selected Fin. Collateral

Standard
Simple Approach:
Physical Approach
Financial Collateral Substitution of Risk
Collateral
Weights
• Cash •Receivables
• Gold •Real Estate Selected Fin. Collateral
• Debt securities rated by ECAIs Collateral
- Sovereign or PSE exposure rated BB- or better Standard
- Commercial Comprehensive
Approach
- Other exposure rated BBB- or better Real Estate Approach:
- Short-term rating of A-3/P-3 or better (CRE) Reduction of Exposure
• Debt securities not rated by ECAIs
- Issued by banks and listed on exchange - Residential
Real Estate All collateral types
- Qualifies as senior debt
(RRE) IRB
- Other issues of same seniority rated BBB- (A- Foundation Comprehensive
3/ P-3) or better •Any other Approach Approach:
- Counterparty not expected to be rated below physical
Reduction of Exposure
BBB- collateral
All collateral types
• Equities included in a main index
• Equities not included in a main index but listed on a IRB
Collateralisation
recognized exchange Advanced
Approach reflected in derivation
of Loss Given Default
(LGD)
BASEL II PILLAR 1 – MARKET RISK STANDARDIZED MEASUREMENT APPROACH
WHAT ARE MARKET RISKS ?
19

Market Risks
u Risk of losses in on- and off-balance sheet positions arising from movements in market prices
u The risks subject to this requirement are:
- The risks pertaining to interest rate related instruments and equities in the trading Book
- Foreign exchange risk and commodities risk throughout the bank

Trading Book
u A trading book consists of positions in financial instruments and commodities held either with trading intent or in order to
hedge other elements of the trading book.
u To be eligible for trading book capital treatment, financial instruments must either be free of any restrictive covenants on
their tradability or able to be hedged completely.
u In addition, positions should be frequently and accurately valued, and the portfolio should be actively managed.
u Trading book positions are more vulnerable to short-term changes in their value and therefore warrant a capital charge
against market risk.
u Positions held with trading intent are those held intentionally for short-term resale and/or with the intent of benefiting
from actual or expected short-term price movements or to lock in arbitrage profits, and may include for example
proprietary positions, positions arising from client servicing (e.g. matched principal broking) and market making.
INTEREST RATE RISK
20

Interest rate risk capital charge is the total of both specific and general risk capital charges

Specific Risk General Risk

Definitions Adverse movement in the price of an Risk of loss arising from changes in market interest
individual security owing to factors related rates
to the individual issuer
Exposures 1. Absolute gross market value of long and Net short or long market value of debt securities
short debt securities positions positions by currency
2. Offsetting is restricted to matched
positions in the identical issue
Measurement Specific risk capital charge according to General risk capital charge for the followings:-
Method counterparty type and credit ratings 1. Net position charge
2. Basis risk charge
3. Yield curve risk charge
Measured using one of the following methods:-
1. Maturity Method
2. Duration Method
Parameters 1. Counterparty type 1. Coupon rate
2. Credit ratings 2. Residual term to maturity
3. Residual term to final maturity
EQUITY RISK
21

Equity risk capital charge is the total of both specific and general risk capital charges

Specific Risk General Risk

Definitions 1. Gross equity positions (i.e. the sum of 1. Difference between the sum of the longs and
all long equity positions and of all short the sum of the shorts (i.e. the overall net
equity positions) position in an equity market)
2. Long and short positions in the same 2. The long or short position in the market must be
issue may be reported on a net basis calculated on a market-by-market basis, i.e. a
separate calculation has to be carried out for
each national market in which the bank holds
equities.
Exposures 1. Absolute gross market value of long and Net short or long market value of debt securities
short debt securities positions positions by currency
2. Offsetting is restricted to matched
positions in the identical issue
Measurement 8%, unless the portfolio is both liquid and 8%
Method well-diversified, in which case the charge
will be 4%.
Parameters 1. Counterparty type 1. Coupon rate
2. Credit ratings 2. Residual term to maturity
3. Residual term to final maturity
FOREIGN EXCHANGE RISK
22

General Risk

Definitions Risk of holding or taking positions in foreign currencies, including gold

Exposures 1. The net spot position (i.e. all asset items less all liability items, including accrued interest,
denominated in the currency in question)
2. The net forward position (i.e. all amounts to be received less all amounts to be paid under
forward foreign exchange transactions, including currency futures and the principal on
currency swaps not included in the spot position)
3. Guarantees (and similar instruments) that are certain to be called and are likely to be
irrecoverable
Measurement Short hand method:-
Method 1. 8% of the higher of either the net long currency positions or the net short currency positions
and
2. 8% of the net position in gold
Parameters Currency code
COMMODITIES RISK
23

General Risk

Definitions The risk of holding or taking positions in commodities, including precious metals, but excluding
gold
Exposures 1. Long and short positions in each commodity may be reported on a net basis for the
purposes of calculating open positions
2. Positions in different commodities will as a general rule not be offsettable in this fashion
Measurement Commodity risk capital charge captures the following risks:
Method 1. Directional Risk (15% of net position)
2. Basis Risk, Interest Rate Risk and Forward Gap Risk (3% of gross position)
Commodity risk capital charge can be measured using one of the following methods:-
1. Simplified Approach
2. Maturity Ladder Approach
Parameters Commodity type
BASEL II – PILLAR 1 OPERATIONAL RISK BASIC INDICATOR APPROACH
OPERATIONAL RISK BIA MEASUREMENT
25

• Operational Risk capital charge under the BIA is calculated as follows:

• Average over the previous three years of a fixed percentage (denoted alpha, i.e. 15%) of positive annual gross income

• Figures for any year in which annual gross income is negative or zero should be excluded from both the numerator and
denominator when calculating the average

• The charge may be expressed as follows:

where:

KBIA = the capital charge under the Basic Indicator Approach

GI = annual gross income, where positive, over the previous three years

N = number of the previous three years for which gross income is positive

α = 15%
DEFINITION OF GROSS INCOME
26

• Gross income is defined as follows:-

• Net interest income plus net non-interest income

• Gross of any provisions (e.g. for unpaid interest)

• Gross of operating expenses, including fees paid to outsourcing service providers

• Exclude realized profits/losses from the sale of securities in the banking book

• Exclude extraordinary or irregular items as well as income derived from insurance

BASEL II – PILLAR 2 SREP & ICAAP OVERVIEW
 ICAAP FRAMEWORK
28

Key Requirements
§ Establish rigorous corporate governance
Board & Senior Management Oversight
and senior management oversight
ICAAP Management

§ Establish risk-based strategy including

defining and setting the bank’s appetite
Monitoring, Reporting and Review
and tolerance for risk

§ Assess and measure all material risks

inherent in Group’s business
Use of ICAAP
§ Review, monitor, control and report on
all material risks
Capital Capital Capital Capital Capital
§ Demonstrate that ICAAP forms an
ICAAP Measurement

Charge Charge Charge Charge* Charge*

integral part of day-to-day management
Risk Aggregation process and decision making culture of
Credit Interest rate Other
the Group
Risk (inc. Market Operational Risk in the Risks
Concentr. & Risk Risk Banking (Strategic, § Relate capital to level of risk and
residual risk) Book Reputation) ensure capital adequacy using scenario
analysis and stress testing methods
 RISK APPETITE OVERVIEW
29

What is Risk Appetite?

Risk Appetite is the amount and type of risk that an organization is able and willing to
accept in pursuit of its business objectives. It can be set qualitatively (“high”, “moderate”,
“very low”) or quantitatively (e.g. through at-risk measures) for broad groups of risks.

It does not seek to prevent risk taking. It aims to establish an understanding of the risk
exposure’s implications and establish tolerable thresholds that guide the business to
optimize risks-returns.

Implicit Risk Appetite Explicit Risk Appetite

Implied statement of acceptable risk taking or Statement that is explicitly defined by the
behaviour by an organization in the pursuit of its organisation and used internally to
corporate objectives management and monitoring purpose
RISK ADJUSTED RETURN ON CAPITAL (RAROC)
30

Introduction to RAROC - Components

Interest income Direct

Risk-Adjusted
Profit & Loss Funds charge Indirect Expected
Interest Non
Overhead Loss Earnings
expense Interest
(for credit on Capital
Funds credit Income
Taxes risk)
Net Interest Non Interest
Income Expense

Risk-Adjusted Return
= RAROC
Risk-Adjusted Capital
Risk-Adjusted
Capital
Market Operational Other
Credit Risk
Risk Risk Risks
Capital allocated for unexpected losses

RAROC best practice is to adjust net income for expected losses due to credit risk and adjust capital for
unexpected losses due to risks
 LINKING RAROC TO VALUE
31

Application of RAROC
ILLUSTRATIVE
Total Bank ♦ Creates a level playing field
Hurdle Rate = 15%1
that supports identification of
Capital allocated according to value (e.g. economic profit),
risk, with an expectation of when compared against the
meeting or exceeding the hurdle
rate bank-wide hurdle rate, or the
400m 600m 1000m
minimum return expected by
BU 1 BU 2 BU 3 shareholders
RAROC 20 % 15 % 10 % ♦ Enables better understanding
Econ. Profit2 ($) 20m 0 <50m> of where capital should be
allocated and the associated
Econ. returns, contributing to
Profit ($) “Value adding” decision making
+5% Hurdle Rate = 15% ♦ Provides a uniform and
comparable measure of the
-5%
risk-adjusted rate of return
“Value destroying” across all lines of business or
products, enabling relative
1 In this simplified example the hurdle rate for each business is assumed to be the same as the
rankings for performance
overall hurdle rate for the bank evaluation
2 Economic Profit = (RAROC - Hurdle Rate) x Allocated Capital
BASEL II – PILLAR 3 MARKET DISCIPLINE OVERVIEW
CONCEPTUAL OVERVIEW
33

Guiding Principles

u Complements Pillars 1 and 2

u Should be consistent with how senior officers actually manage risks in the bank

Achieving appropriate disclosure

u Pillar 3 helps give supervisors a level playing field for disclosure, but actual implementation is left to country supervisors

Interaction with Account Disclosures

u Similar to, but different from, accounting disclosures – Pillar 3 has a narrower scope of capital adequacy reporting

u Location of disclosure is not specified – but management must try to keep all disclosure in same place
CONCEPTUAL OVERVIEW (CONTINUED)
34

Banks must decide whether the information is material – but there is guidance on what information is material

Frequency of disclosure

u Mostly on semi-annual basis

u Risk Policies etc. on an Annual basis

u Large international banks must disclose on quarterly basis

Proprietary and confidential information

u Banks should determine which information is proprietary before disclosure – issue of discussion with supervisor

u E.g. Methodologies, parameter estimates etc.

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