Handbook of Basel III Capital

A deeper examination of Basel III for more effective capital enhancement

The Handbook of Basel III Capital - Enhancing Bank Capital in Practice delves deep into the principles underpinning the capital dimension of Basel III to provide a more advanced understanding of real-world implementation. Going beyond the simple overview or model, this book merges theory with practice to help practitioners work more effectively within the regulatory framework, and utilise the complex rules to more effectively allocate and enhance capital. A European perspective covers the CRD IV directive and associated guidance, but practitioners across all jurisdictions will find value in the strategic approach to decisions surrounding business lines and assets; an emphasis on analysis urges banks to shed unattractive positions and channel capital toward opportunities that actually fit their risk and return profile. Real-world cases demonstrate successful capital initiatives as models for implementation, and in-depth guidance on Basel III rules equips practitioners to more effectively utilise this complex regulatory treatment.

The specifics of Basel III implementation vary, but the underlying principles are effective around the world. This book expands upon existing guidance to provide a deeper working knowledge of Basel III utility, and the insight to use it effectively.

• Improve asset quality and risk and return profiles
• Adopt a strategic approach to capital allocation
• Compare Basel III implementation varies across jurisdictions
• Examine successful capital enhancement initiatives from around the world

There is a popular misconception about Basel III being extremely conservative and a deterrent to investors seeking attractive returns. In reality, Basel III presents both the opportunity and a framework for banks to improve their assets and enhance overall capital - the key factor is a true, comprehensive understanding of the regulatory mechanisms. The Handbook of Basel III Capital - Enhancing Bank Capital in Practice provides advanced guidance for advanced practitioners, and real-world implementation insight.

Auteur

JUAN RAMIREZ is a senior professional at Deloitte in London, assessing the regulatory capital impact, accounting treatment, and risk management of complex transactions. He has a strong expertise in providing advice on the design of specific complex financial instruments and transactions to enhance regulatory capital. During his career mostly in London, he has worked for BNP Paribas, JP Morgan, Lehman Brothers, Barclays Capital, and Banco Santander. He has devoted more than twenty years to marketing structured derivatives solutions, including commodity, credit, equity, fixed income, and FX. He is the author of Accounting for Derivatives and Handbook of Corporate Derivatives and Equity Capital Markets, both published by Wiley. Juan holds a BSc in Electrical Engineering from ICAI in Spain and an MBA from University of Chicago.

Texte du rabat

A deeper examination of Basel III for more effective capital enhancement The Handbook of Basel III Capital - Enhancing Bank Capital in Practice delves deep into the principles underpinning the capital dimension of Basel III to provide a more advanced understanding of real-world implementation. Going beyond the simple overview or model, this book merges theory with practice to help practitioners work more effectively within the regulatory framework, and utilise the complex rules to more effectively allocate and enhance capital. A European perspective covers the CRD IV directive and associated guidance, but practitioners across all jurisdictions will find value in the strategic approach to decisions surrounding business lines and assets; an emphasis on analysis urges banks to shed unattractive positions and channel capital toward opportunities that actually fit their risk and return profile. Real-world cases demonstrate successful capital initiatives as models for implementation, and in-depth guidance on Basel III rules equips practitioners to more effectively utilise this complex regulatory treatment. The specifics of Basel III implementation vary, but the underlying principles are effective around the world. This book expands upon existing guidance to provide a deeper working knowledge of Basel III utility, and the insight to use it effectively. Improve asset quality and risk and return profiles Adopt a strategic approach to capital allocation Compare Basel III implementation varies across jurisdictions Examine successful capital enhancement initiatives from around the world There is a popular misconception about Basel III being extremely conservative and a deterrent to investors seeking attractive returns. In reality, Basel III presents both the opportunity and a framework for banks to improve their assets and enhance overall capital - the key factor is a true, comprehensive understanding of the regulatory mechanisms. The Handbook of Basel III Capital - Enhancing Bank Capital in Practice provides advanced guidance for advanced practitioners, and real-world implementation insight.

Contenu

Preface xiii

About the Author xv

Chapter 1 Overview of Basel III 1

1.1 Introduction to Basel III 1

1.2 Expected and Unexpected Credit Losses and Bank Capital 3

1.3 The Three Pillar Approach to Bank Capital 4

1.4 Risk Weighted Assets (RWAs) 8

Chapter 2 Minimum Capital Requirements 11

2.1 Components and Minimum Requirements of Bank Capital 11

2.2 Components and Minimum Requirements of Capital Buffers 12

2.3 Capital Conservation Buffer 13

2.4 Countercyclical Buffer 14

2.5 Systemic Risk Buffers 19

2.6 Going Concern vs. Gone Concern Capital 23

2.7 Case Study: UBS vs. JP Morgan Chase G-SIB Strategies 25

2.8 Transitional Provisions 36

Chapter 3 Common Equity 1 (CET1) Capital 39

3.1 CET1 Minimum Requirements 39

3.2 Eligibility Requirements of CET1 Instruments 39

3.3 Case Study: UBS Dividend Policy and Its Impact on CET1 48

3.4 Case Study: Santander Dividend Policy and Its Impact in CET1 54

3.5 Accumulated Other Comprehensive Income 58

3.6 Case Study: Banco BPI's Partial Disposal of Portfolio of Portuguese and Italian Government Bonds 69

3.7 Other Items Eligible for CET1 Capital 74

3.8 CET1 Prudential Filters 75

3.9 Additional Valuation Adjustments 76

3.10 Intangible Assets (Including Goodwill) 76

3.11 Case Study: Danske Bank's Goodwill Impairment 84

3.12 Case Study: Barclays Badwill Resulting From Its Acquisition of Lehman Brothers N.A. 85

3.13 Deferred Tax Assets 87

3.14 Fair Value Reserves Related to Gains or Losses on Cash Flow Hedges 87

3.15 Negative Amounts Resulting From the Calculation of Expected Loss Amounts 97

3.16 Equity Increases Resulting from Securitised Assets 98

3.17 Gains or Losses on Liabilities Valued at Fair Value Resulting from Changes in Own Credit Standing 99

3.18 Defined Benefit Pension Plans 110

3.19 Case Study: Lloyds' De Risking of its Defined Benefit Pension Plans 119

3.20 Holdings by a Bank of Own CET1 Instruments 121

3.21 Case Study: Danske Bank's Share Buyback Programme 124

3.22 Case Study: Deutsche Bank's Treasury Shares Strategy 125

3.23 Holdings of the CET1 Instruments of Financial Sector Entities 140

3.24 Deduction Election of 1,250% RW Assets 140

3.25 Amount Exceeding the 17.65% Threshold 141

3.26 Foreseeable Tax Charges Relating To CET1 Items 142

3.27 Excess of Qualifying AT1 Deductions 142

3.28 Temporary Filter on Unrealised Gains and Losses on Availablefor Sale Instruments 142

Chapter 4 Additional Tier 1 (AT1) Capital 144

4.1 AT1 Minimum Capital Requirements 144

4.2 Criteria Governing Instruments Inclusion in AT1 Capital 144

4.3 Deductions from AT1 Capital 151

4.4 Holdings of AT1 Instruments of Other Financial Institutions 154

4.5 Case Study: Lloyds Banking Group…