普华永道.pptx

,Introduction level,First level,Second level,Third level,#,Pricewaterhou,seCoopers,Implications on,market participants,Basel II,Agenda,Introduction,Basel II and RBCD(CAD3),Strategic implications,Pillar 2 Survey EU,Pillar 2 Survey in Accession States,Practical Implementation Issues,Executive summary,The Basel II is not just a regulatory imperative,but will fundamentally redefine the approach to risk and capital management,.,For EU member states,Basel II will be realised in the Risk Based Capital Directive(sometimes called CAD3).Implementation for all banks in EU is expected in 2006.,The project time analysis shows that banks need to be finishing preparations at this time.,Three pillars:,Pillar 1-Minimum capital Credit and operational risk,Pillar 2-Supervisory review,Pillar 3-Market discipline/disclosure,Mutually reinforcing and inter-linked.,Basel II:the basics,Basel II vs Risk Based Capital Directive(RBCD),Political,:Basels Best Practice vs EU Law.,Financial System,:CAD 3 will apply to all banks in the EU and to investment firms authorised under the Investment Service Directive(ISD)*.,Regulatory Oversight,:Concerns about national regulator discretion and the integrity of the single market.,Reduced Burden for Groups,:Lead country supervision,.,Consolidation,:Strict Approach to,capital requirements at solo,sub-group and consolidated levels,.,Credit Risk,:Permanent partial use of Foundation IRB for smaller financial institutions.,Operational Risk,:There,are fewer,different and apparently less demanding,qualifying criteria for the Standardised Approach and the Advanced Measurement Approaches(AMA),than those specified by Basel.,14,Strategic Implications,Banks,Capital savings,Aiming to align to economic risk management,Focus on ratings rather than on regulatory capital,Substantial marginal cost savings,Funding,Focus is no longer on origin(”OECD”),but on rating,Penalty for low rated bank investments,Expenses,Spend short to medium term income benefits in the longer term,But:process efficiencies and integrated risk management to be achieved,Strategic Implications,Banks(contd),Market share/composition of business,Advanced approach allows leveraging competitive intelligence(risk differentiation,customer selection,etc.),Standardi,z,ed approach compounds disadvantages(e.g.rated vs.un-rated),Possible change in business mix,Reputation(ratings and analysts),Setting industry benc,h,marks for systems and processes,Uncertain implications on ratings,but cannot be ignored,Acquisition,Market confidence in better integration through better risk management,Pricing advantage due to potential capital release,Strategic Implications,Banks(contd),Market acceptance,Negative differences from competitors will be evident,Key differentiators will be reporting capability and positioning,Need to anticipate adverse reactions from market,Develop clear Basel strategy and programme for execution,Placate regulators and rating agency concerns,Manage expectations,Strategic Implications Summary,Alignment of regulatory and economic capital,Reduced need for capital,Regulatory capital arbitrage,Value creation,Investment decision making,Risk and return,Integrated risk management,10-20%reduction,Reliance on wholesale sources,Cost-to-income ratio?,Changing?,Credit rating,Funding expense,New sources and reduced interbank funding,Tiering:discount by level of approach,Expenses,Validation,staffing,systems,process,reporting,Market share/composition,Cherry-picking,adverse customer selection,Reputation,Compliance and reporting impacts on ratings agency and analyst views,Discount,Share price volatility,Acquisitions,In-market purchases,Market acceptance,Communication of strategy,Managing expectations,Effect on other m,arket participants,Customers,Rating(or lack of)impacting terms,Increased transparency,Focus on quality collateralization,Providing information,Rating Agencies,Increased need for rating,Reduced market share if banks opt for IRB approach,Potentially increased competition,Greater transparency of rating process,Capital Markets,Securitization,Growth of debt market,Scoped out Financial Institutions,Consider the extent complying with Basel II,Strategic Implications What about Pillar II?,Pillar II requirements remain unclear,Level of capital allocation modelling required,Stress testing requirements,Governance,systems and controls/potential overlap with Sarbanes Oxley requirements,Banks worry about the potential for“unlevel”playing field,Many areas of“national discretion”remain,Potential for national supervisors to be“superequivalent”,Home vs.host supervision,Worries also exist regarding the capabilities/resources of supervisors to undertake risk assessments,Will Pillar II“unravel”the potential benefits gained under Pillar I?,Pillar 2 in More Depth,Four Principles of Pillar 2,Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.,Supervisors should review and evaluate banks internal capital adequacy assessments and strategies,as well as their abilities to monitor and ensure their compliance with regulatory capital ratios.Supervisors should take the appropriate actions if they are not satisfied with the results of this process,Supervisors should expect banks to operate above minimum regulatory capital ratios and,should have the ability to require,banks to hold capital in excess of the minimum,Supervisors should seek,to intervene at an early stage,to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital in not maintained or restored.,Basel.Hopes and Fears:European banking view of the practical application of Pillar 2”,A survey to understand the preparedness for Pillar 2 in EU member states,.,Banks(21)in nine member state countries,29 questions.,The survey has sought to:,Establish industry views on Pillar 2.,Assess how industry currently approaches risk assessment and appropriate economic capital levels therein.,Determine industry readiness for the supervisory review process.,Establish the key challenges that industry is facing in preparing for th,e,supervisory review process.,Results of Pillar 2 Survey in EU:Hopes and Fears,The Pros,General support for principle of Pillar 2,Pillar 2 a driver of much needed change,The Cons,Level playing field and competitive implications key concern,Unravelling of Pillar 1 charge through additional capital in Pillar 2,Increase in supervisory scrutiny,Unclear who will bear costs,Likelihood for interference and stifling of innovation,Sufficiency of supervisory skills and resources,Roll-out and scope of application of Pillar 2,Action Points on Pillar 2,Need to focus NOW on Pillar 2 to ensure capital gains from Pillar,1,are not eroded.,Systems,controls and governance must be assessed against the requirements in CP3,other relevant Basel best practice papers,the European Commission and national supervisory rules as a matter of urgency.,Board and senior management awareness and involvement must be improved,Economic capital models need to be credible robust,and fully integrated into the organisations business model.,Firms need to ensure that an integrated approach is adopted to the implementation of all initiatives underway in the regulatory environment,such as International Financial Reporting Standards(IFRS)in 2005.,Documentation,and the supporting systems requirements,must be brought up to speed.,Supervisory dialogue must be increased and the relationship with the supervisor strengthened,Key Messages from Pillar 2 Survey in EU,Uncertainty and lack of clarity abounds,Level of preparedness varied across sample,Governance arrangements a weak spot,Systems and controls need improving,Economic capital modelling 10%fully developed,Lack of guidance on stress-testing an issue CP3 has not helped,Home state versus host state implementation,Supervisors generally regarded as having insufficient resources and expertise,Pillar 2:,Basel.,Hopes and Fears in Accession States,Czech Republic(4),Estonia(2),Hungary(9),Poland(4),Regulators need to balance between developed and developing world.,Banks are in early stages of implementing approaches to economic capital.,Respondents in Czech Republic and Poland (and some in Hungary)felt that supervisor should rely more upon the reviews of external and internal auditors.,Respondents indicted that supervisors have adequate skills to implement Pillar 2 effectively,but will not have sufficient resources,legal powers and political support to intervene at an early stage.,Not clear what methodologies national regulators will use to validate internal models.,Pillar 2:Basel.Hopes and Fears in Accession States,No more time to wait for headquarters in accession countries local requirements have priority.,Regulators have not done enough to communicate their expectations,and hence progress in pillar 2 is perhaps lagging the most.,Recognition that more must be done to merge IFRS,SARBOX and RBCD requirements guidance expected from regulators.,Trends:Potential Outcomes,Global Market Issues:US stance differ significantly from EU a rerun of the conflict on auditing and accounting?,Insufficient or unreliable data in accession countries will probably lead to a final implementation of standard approach in many banks,which would have a significant impact on capital requirements.,Regulators may be inclined to provide certain flexibility to domestic champions,threat to national reputations and single market,.,Banks which manage Basel poorly could disappear.,By 2006,some foreign banks may have larger operations in Central and Eastern Europe than in their home territories.These banks,in particular,will seek to meet,advanced,Basel requirements,.However,f,ailure to do so could jeopardise their investment to date and leave them exposed to acquisition.,Project experience,The creation and embedding of the framework and reporting processes will require cross functional approaches and project teams,Basel II is just one of a number of changes that will draw on resources from Risk,Controlling and Internal Audit,business units and IT,The style,emphasis and focus of the programme will change during its lifespan needs to be actively managed,Data and systems challenges cannot be addressed in isolation needs to be tied to business requirements and local implementation initiatives,MANY IMPLICATION PROJECT FAIL IN PRACTCE due to lack of executive sponsorship,or appropriate project risk and issue management,The real prize lies,in meeting value creation objectives,whilst obtaining regulatory approval,Additional Information,PwC Sources of Financial Sector and Specific Basel II/CAD 3 Information:,EU Watch FS:News about financial services developments in the EU,subscribe,!,II Navigator:An interactive tool to understanding Basel II,download it,!,website-Basel only:,CEE Basel team,CEE and Hungarian Team,David Wake partner CEE Financial Risk Management Services,Jim Kernan senior manager CEE European services,Zoltn Rtz director Operational Risk Services,gnes Tardos senior manager Financial Risk Management Services,rpd Balzs senior manager Financial Services,