Live Online Training on

Basel Landscape - Banking Capital and Liquidity Regulations

from Basel II, III & IV.

16-18 June, 2025

Mr. Michael Stafferton

Workshop Trainer
 MR. MICHAEL STAFFERTON
Michael has over twenty years' experience of
training and consulting with clients on a range of
technical financial areas, based on his previous
market experience in derivatives and fixed income.
Bank regulation and risk management is a particular area of focus,
together with other capital markets related areas, including
securitisation. He invests a considerable amount of time keeping up
with developments in the financial world, such as fintechs and crypto.
His client-list comprises primarily central banks, investment banks,
commercial banks, fund managers and insurers globally. He is an
Associate with Moody's Analytics.

+971-50-8037860 vinod.k@biiglobal.co www.biiglobal.co

 Overview
Knowledge of the Basel rules is fundamental to understanding how banks
operate. This is a comprehensive course that covers all the many different
elements, how they interact and the varying impact they have. It is
illustrated throughout with case studies of extracts on each area from
recent Pillar Three reports.

Objectives
• To ensure understanding of all the main areas and how they interact
• To enable delegates to identify which particular areas are more
impactful for their banks
• To enable delegates to identify the trade-offs certain rules introduce
• To help delegates to optimise their bank's strategy and activities
• To understand the connection to the bank's internal risk management
and strategy
• To help delegates to assess the scale of resources – staff and IT systems
– that are necessary to achieve compliance with the rules

Benefits
• A comprehensive understanding of the many different elements of the
rules
• Understanding how the rules interact and the trade-offs they introduce
• Understanding the different ways the rules affect your individual bank
• An understanding of how to optimise your bank's activities given the
rules
• Understanding the connection with and importance of the bank's
internal risk management and strategy
• An understanding of the amount of resources needed to comply with the
rules

+971-50-8037860 vinod.k@biiglobal.co www.biiglobal.co

 Course content
Day One
Introduction
Brief review of a Retail and Commercial bank’s business model, the
main risk types it gives rise to – Credit, Market, Operational and Liquidity
– and the different ways they can be mitigated
Capital for unexpected (‘stressed’) losses, provisions for expected losses
(see IFRS 9 below)
The challenge of trying to forecast how much is ‘enough’, trying to get
the balance right
From global to national – the national regulator’s influence
Internal vs regulatory risk management
Making most deposits fail-safe: deposit insurance, the extent of cover
and its impact on bank risk-taking
Systemic risk – how it arises, how Basel and other regulations try to
mitigate it

Basel II - in brief
The introduction of the Three Pillars
The extension of different Approach levels from Market risk to Credit
and Operational risk
The Standardised Approach for Credit Risk - Risk Weights by client type
– e.g. Sovereign, Bank, etc.
The Internal Ratings Based (IRB) approaches for Credit risk, Foundation
and Advanced
Operational risk – Standardised, Advanced
Market risk – Standardised and Internal Models, e.g. Value at Risk (VaR)
models
The composition of Capital – Tiers – and minimum ratios

On to Basel III
How Basel II failed to stop (encouraged?) the Great Financial Crisis in
the West
Non-Basel financial regulation – e.g. the Financial Stability Board (FSB)
and swap clearing
The drive to reduce the difference between the Approach levels by
upgrading the Standardised Approaches; the requirement for those
using Internal models to also calculate their requirements using the
revised Standardised approach

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 Pillar One
Credit risk
From Basel II Standardised to Revised Standardised
The revised Risk Weights for Corporates, Banks (rating type
change), Retail, etc.
Credit risk mitigation (CRM) – on-balance sheet netting,
collateral, etc. and its impact
Off-balance sheet items - Credit Conversion Factors (CCFs)
Case study example
Large exposures
The IRB Approach, 1-year Probabilities of Default (PDs) and the
Output floor
Case study example
IFRS 9, its three stages and how it interacts with the IRB and
Standardised approaches
Case study example
Counterparty Credit Risk (CCR)
How it arises on, for example, forward FX
The Revised Standardised Approach and other methods
Case study example
Credit Valuation Adjustment (CVA)
The risk of a rise in the Credit risk of a counterparty
How CVA changed even during Basel III
Case study example
Market risk and ‘Basel IV’/Fundamental Review of the Trading Book
(FRTB)
The Revised method, including the Sensitivities-based Method
(SbM)
Case study example (if available, as this was only introduced
recently)
Changes to the Internal Model Method (IMM); in brief
Case study example (again, this may need to be of the previous
regime)
Operational risk
The Revised Standardised approach and end of the Advanced
Case study example
Capital types and ratios
The different types of Capital – Common Equity Tier 1 (CET1),
Additional Tier 1 (AT1), Tier 2 (T2) – the minimum ratios and the
various buffers – Counter-Cyclical, etc.
Domestically Systemically Important Banks (SIBs)

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 What counts as CET1, etc.
What must be deducted – ‘Regulatory adjustments’: e.g. deferred
tax assets, etc.
Case study example
Total Loss-Absorbing Capital (TLAC) and bail-in Non-preferred
Senior Unsecured bonds
Case study example

Day Two
The Leverage Ratio, and how it differs from the Capital ratio
The Exposure Measure
No Risk Weights
Off-balance sheet CCFs
Case study example
Liquidity
The Liquidity Coverage Ratio (LCR)
Estimating inflows and outflows using the specified weights,
what counts as Stable, the impact of deposit insurance
What counts as High Quality Liquid Assets (HQLA) – weights
Case study example
The trade-offs between different types of HQLA in different and
changing interest rate scenarios and the impact on the business
The Credit Suisse debacle and future possible changes
What Central banks actually did in stress scenarios and what that
may mean for future liquidity regulation
The Net Stable Funding Ratio (NSFR) – strategic Asset-Liability maturity
mis-match management
Required v Available Stable Funding – the different weights
Case study example

Pillar Two - its role

General requirements, e.g. governance, etc.
Credit risk concentration
Risk aggregation
Risks not captured by Pillar One, e.g. IRRBB (see below)
Internal Capital Adequacy Assessment Process (ICAAP) and Stress
testing
The key role of capital stress testing in determining whether a
bank has enough Capital, via both bank-determined and Central
bank defined scenarios

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 The challenge of running Stress tests, the staff and resources
required
The two main scenarios, Baseline and Adverse, the typical length
of the scenario period
Projecting the evolution of the distribution of exposures according
to the three IFRS stages, using transition and impairment rates
Static v incorporating management response
The Baseline scenario, using current economic forecasts
The challenge of linking transition and impairment rates to
economic forecasts, the availability and quality of internal and
other historic credit performance data
Which are the key economic drivers of credit distress?
Profitability: the main components, e.g. Net Interest Income (NII)
and its key components - average credit spread, low cost Retail
deposits, fees, losses, etc.
The dividend pay-out/retention ratio, resulting expected Capital
amount

Day Three
The Adverse scenario and the challenge of calibrating ‘tail risk’ -
how stressful a stress?
Reviewing previous stressed periods, their causes and impact,
both domestically and in other countries where the bank
operates
Future possible stress event types
A model for estimating the impact of stressed periods on
Corporate credit: the Structural or Merton model and the Equity-
Credit link, the impact of implied Asset Value volatility on
Probability of Default (and Loss Given Default)
Simpler alternatives: historic stressed period transition matrices,
multiple of average impairment rate by credit grade – what
multiples?
The impact on profitability and Capital
The Reverse stress test
Case study
Interest Rate Risk in the Banking Book (IRRBB) – a new
requirement for a different approach to an old problem
How Interest rate risk arises – asset v liability maturity and interest
rate reset date mis-matches, but above all non-maturity
deposits (NMDs) and (if applicable) holding government bonds
(HTM)

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 A traditional approach: ‘gap’ analysis – the ladder of asset and
liability bucketed maturities
Taking Gap analysis further with duration and stressed yield
curve changes
IRRBB Part One: the Economic Value of Equity (EVE) approach
Brief review of single-period and compound discounting to a
Present Value (PV), bonds and duration (PV01)
Marking both interest-rate sensitive sides of the balance
sheet to market with various stressed yield curve changes
and taking the worst net outcome
Bucketing the positions and the specified time buckets
Applying this to the current interest rate period of floating
rate loans
Applying this to NMDs, the regulatory approach
The impact of AT1, Tier 2 Subordinated term debt, TLAC/MREL-
eligible Senior term bonds, etc.
The different yield curve scenarios and the level of change
Comparing the worst case with Capital – does it exceed 15%
of Tier 1?
Optionality: client breakage of Fixed Rate Term Deposits (or
Loans), exactly how are breakage penalties calculated, for
Institutional, Retail, trying to quantify the net impact with
option analysis and valuation
Case study example
IRRBB Part Two – Net Interest Income (NII)
Starting point: static balance sheet with instantaneous yield
curve changes
Case study example
The impact of changing depositor and borrower behaviour
as interest rates change – e.g. the demand for term deposits
and the exodus to bonds
Comparing EVE and NII
Risk mitigation - structural hedging, derivatives and their pros
and cons

Internal Liquidity Adequacy Assessment Process (ILAAP)

[Note: this section is shorter since most of the key concepts are
covered with the LCR]

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 Internal data – historic stressed period net outflow data, rolling
cumulative outflows for past week, month, etc., availability of
wider market data, seasonality, etc.
Intra-day liquidity management
Reverse stress test
Comparing and contrasting with LCR weights
Pre-positioning assets with the CB
Pillar Three - disclosure

+971-50-8037860 vinod.k@biiglobal.co www.biiglobal.co

 Pricing
USD 1299 Per Participant

+971-50-8037860

www.biiglobal.co

vinod.k@biiglobal.co