BASEL II:

1. What is the link between Basel II and Information Technology?

To capture and manage extensive information related to account level
and operational risk events.
2. Difficulties faced by FIs

Incorrect, incomplete or inaccessible

counterparty reference data

3. How to address the problem? -

4. Challenge -

Implement a reliable,
persistent repository (or hub)
of counterparty reference
data.

Collection of counterparty data from different

locations on a real-time basis

5. Basic requirements for Basel II compliance:

a.
b.
c.
d.
e.
#

Data Warehouse, Business Intelligence solutions

Additional Data Capture
New data models
Enhanced data quality
New reporting structures

Same data is to be used for

Financial reporting
Market disclosure
Internal day-to-day mgmt.

6. Use of BI service providers:

a.
b.
c.
d.

Development of Gap Analysis

Operational solutions to assess additional data requirements
Identify options for data capture
Developing approaches to support incremental data quality, data
auditability, and data storage
e. Develop standardized reporting requirements
f. Develop checklists of reconciliation requirements
(Basel II data to General Ledger
Financial Reporting)
g. Ensure Basel II environment is integrated into the overall DW
architecture
7. Basic themes of Basel II:

Optimize risks
Advance business
Increase competitive advantage
Improve Capital Efficiency

8. Best Practices

Ensure availability of adequate

regulatory capital against all risk
exposures
Demonstrate a reliable system to
understand, manage and price all
risks encountered

9. Operational Risk (Basic Indicator Approach) Addl. Capital Rs.20KCr.

10. Risk Management Solution:
Calculate, monitor, report and understand the exposures at any
level for
a. Credit Risk and Portfolio Analysis (by industry, domicile,
maturity, etc.,)
b. Credit Analysis from origination to approval to loan syndication
and Portfolio Management
c. Credit Risk Management Reporting and Analysis for Basel II
d. Operations Risk Management for Basel II (Self-assessment
process, identification/location of KRIs, Capture & Reporting
of loss events, scoring of risk drivers in accordance with
Advanced Management Approach)
11. How does one start?
a.
b.
c.
d.

Credit Analysis for Banking

Credit Risk Management for Basel II
Operations Risk Management for Basel II
Economic Capital Management

12. Delivery of Corporate Credit Solution:

a. Packaged cashflow modeling, pre-built fully integrated financial
statements.
b. Scenario creation and management capabilities to explore
multiple modeling assumptions amongst different financing
alternatives
c. User-directed enquiry and analytics reporting capabilities
d. Centralized technology to provide a unified modeling and reporting
environment with security and user administration
13. Work to be completed:
a. Data Aggregation
b. Analysis

c. Predictive Modelling
14.Key Requirements to move to advanced approaches:
a.Availability of clean historical data
b.Auditability of intermediate calculations
c.Ability to map Basel II prescriptions to business rules.
15.Solution:
a. Migrate from basic approaches
b. Model risk parameters PD (Probability of Default), LGD
(Loss Given Default), EAD (Exposure At Default) and Effective
Maturity (EM)
c. Support for stress testing and back testing for validating
models
d. Understand risk exposures in real-time
e. Identify over- and under-exposed risk concentrations by
geography, industry, instruments and rating
f. Consolidates global, domicile, industry, counterparty exposures
for analysis and reporting
g. Seamlessly access and aggregate data across disparate source
systems
h. Readily detect and monitor credit concentrations against preset limits
i. Gain a powerful management concentration alerting capacity
16.Statistical Techniques:
i. .Regression Analysis for estimating PD and LGD.
ii. .Monte Carlo Simulation for EAD.
17.Pillar I:
Regulatory Capital Calculations are specified.
Four parameters (Risk Components)
Probability of Default (PD)
Loss Given Default (LGD)
Exposure At Default (EAD)
Effective Maturity (EM)
18. Pillar II:
Describes the supervisory process.