Basel IV Masterclass

Basel IV Masterclass


In the wake of the global financial crisis and in response to the lessons learn during it, Basel III was introduced requiring banks to hold far higher quality of balance sheet resources than ever.

Even before Basel III was fully adopted it was followed by further regulation covering areas such as gone concern capital, capital charges traded and non-traded risk which initially informally but more recently formally in certain regions (e.g. CRD V/CRR II in Europe) was/is seen as a blueprint for Basel IV.

This intensive program looks to provide an overview of these subsequent updates to Basel III and in so doing better prepare delegates for adopting Basel IV when/if it becomes formalized.


  • Describe the key regulatory updates post Basel III and rationale for them
  • Evaluate the impact on Standard Approach models for calculation of credit risk capital
  • Have insight into the impact of Basel IV on the IRB approach for the calculation of credit risk capital
  • Understand the Standardised Approach for Counterpart Credit Risk [SA-CCR]
  • Interpret the proposed standards for treatment of Interest Rate Risk in the Banking Book and describe what types of cash flows are impacted, how they should be treated and evaluated
  • Appreciate the rational for impact of the Fundamental Review of the Trading Book [FRTB]
  • Interpret the Standardised Measures Approach for calculation of Operational Risk Capital
  • Articulate the impact of Net Stable Funding Ratio on the bank and the best practice for optimisation of it
  • Have awareness of the ‘beyond pillar 1’ requirements in terms of capital and liquidity adequacy assessment and of required recovery and resolution planning.


  • Heads/Senior Professionals in Treasury
  • Chief Risk Officer’
  • Heads/Senior Professionals in Risk
  • Heads/Senior Professionals in ALM
  • ALCO Professionals
  • Audit and Compliance Professionals
  • Accounting & Finance Professionals
  • Promising Young Leaders of the Future

Day 1:

Session 1 – Overview of ‘Basel IV’

Session 1

  • Highlights and timelines
  • why the need for a fourth accord?
  • What would be the impact of a fourth accord?
  • Impact on Capital and Liquidity

Activity: Delegates will consider a Quantitative Impact Survey [QIS] focused on the impact of Basel IV on banks and discuss what is seen as best practice in terms of preparation for Basel IV an mitigation of the impact.

Session 2: Recap on ambitions and impact of Basel II

  • Basel III – Raising Quality of Balance sheet and ending “TBTF”
  • Impact on Capital
  • Impact on Liquidity
  • Linking Impact on Capital and Liquidity to RoE
  • What are banks doing to mitigate the impact?

Activity: Analyse the impact of Basel III Capital Regime on the RoE generated from a simulated balance sheet, consider the merits of asset lead versus liability lead strategies to mitigate these impacts and discuss best practices of how banks are adapting their strategies to achieve this/what success is dependent upon.

Session 3: Focus on revisions to the Standardised Approach for Credit Risk

  • Treatment of Exposures to Banks
  • Treatment of Exposures to Corporates
  • Treatments of Exposures to Retail
  • Treatment of Exposures to Real Estate
  • Treatment of Credit Conversion Factors [CCF]

Activity: Using the model developed in the previous session delegates will overlay onto it the impact of the Basel IV revisions to the standardized approach and assess/discuss the results.

Session 4: Focus on Revisions to Internal Ratings Based [IRB] Approach

  • Recap of IRB methodologies – Foundation IRB [FIRB] vs Advanced IRB [AIRB]
  • Review of the IRB model for wholesale and retail
  • What’s changing in Basel IV
    • Restrictions on application
    • Restrictions on the modelling of inputs
    • Restrictions of benefits

Activity: Delegates will construct the FIRB model and use it to calculate capital requirements for a portfolio and compare this to that required when the Standardised Approach is used. The impact of Basel IV will then be modeled and the results compared and discussed.

Day 2:

Session 5: Linking Accounting and Prudential Regulation – Overview of IFRS9

  • Overview of IFRS 9 – what’s new?
  • Linking IFRS 9 to Asset Performance and Capital
  • Further considerations.

Activity: Model the impact of IFRS9 impairment on a balance sheet which uses the Standardised Approach and compares it when applied on a contractual and behavioral basis

Session 6: Focus Standardised Approach for Counterparty Credit Risk – Part I

  • Overview of Standard Approach to Counter Party Credit Risk Management [SA-CCR]
  • Recap on methodologies and rationale for change
  • Breaking down the model
  • Defining asset class hedging sets – What can and can’t be netted
  • Calculation of Replacement Cost
    • For un-margined transactions
    • For margined transactions

Activity: Utilising the SA-CCR model delegates will calculate the replacement cots for several different hedging sets of margined and un-margined transactions.

Session 7: Focus Standardised Approach for Counterparty Credit Risk – Part II

  • Calculating Potential Future Exposures
  • Calculating adjusted notional from actual notional
    • Supervisory Duration
    • Maturity Factors
    • Supervisory Delta’s
  • Overview of the multiplier and rationale for it
  • Calculating Add-On’s at an entity and aggregate level
    • How supervisory factors vary between asset classes
    • How correlation factors vary between asset classes
    • How aggregation varies between asset classes

Activity: Delegates will extend the model developed in session 2 and calculate the aggregate add-on’s for several different hedging sets with a counterparty, using the supervisory duration, delta’s, volatility factors. correlation factors and aggregation rules outlined in SA-CCR

Session 8: Focus on Traded Risk

  • Overview of Fundamental Review of the Trading Book [FRTB]
  • Why the need for a fundamental review?
    • Recap of Basel II.5
    • Issues with Basel II.5
  • Highlights of FRTB
    • Capital against Expected Shortfalls
    • Hard bordering of trading book and banking book
    • Individual treatment of asset classes – holding periods etc
  • Operational considerations

Activity: Delegates will model Value at Risk [VaR] and Expected Shortfall [ES] for a simulated portfolio and consider practical challenges in implementing.

Day 3:

Session 9: Non-Traded Market Risk – Overview of IRRBB

  • What is IRRBB and what are the sources of it
  • Comparing IRRBB to CSRBB
  • Measuring IRRBB
    • Economic Value of Equity [EVE} vs Earnings at Risk [EAR]
    • PV01 and DV01
  • Review of BIS 368 ‘Final’ Standards for IRRBB
    • Treatment of cash flows
    • Time bucketing of cash flows
    • Discounting of cash flows
    • Stressing of cash flows
  • Best practice in Structural Hedging
    • What to hedge
    • When to hedge
    • How much to hedge
  • Governance and review– keeping the structural hedge appropriate

Activity: Delegates will assess the sensitivity of earnings and EVE to interest rate shocks on a simulated banking book.

Session 10: Operational Risk and Impact on Capital

  • Defining Operational Risk
  • Challenges in predicting and quantifying it
  • Previous approaches for measuring operational risk capital
    • Basic Indicators Approach [BIA]
    • Standardised Approach [STA]
    • Advanced Measures Approach [AMA]
  • Overview of Standardised Measures Approach [SMA] – why the need to change?
  • Calculating the Business Indicator Component [BIC]
  • Calculating the Individual Loss Measure [ILM]
  • Case Study – KPMG and EBA Impact Analysis

Activity: Delegates will calculate the operational risk capital using BIA and SMA and assess/discuss the results.

Session 11: Focus on Net Stable Funding Ratio [NSFR]

  • Rationale for NSFR and how it works in harmony with Liquidity Coverage Ratio
  • Defining the Denominator – what qualifies as Required Stable Funding [RSF]
  • Defining the Numerator – what qualifies as Available Stable Funding [ASF]
  • Strategies to optimise compliance

Activity: Calculate the NSFR for a balance sheet and evaluate challenges in being compliant and best practice for overcoming these challenges and being compliant optimally.

Session 12: Beyond Pillar 1 and wrap up

  • Overview of ICAAP and ILAAP
  • ICLAAP – Harmonising Pillar 2
  • Overview of Common Principles
  • Overview of regional variations in Basel IV application – CRRII case study
  • Wrap up and key points

Activity: Consider a case study detailing how several banks are harmonizing Individual Adequacy Assessment Processes for Capital and Liquidity [ICAAP+ILAAP=ICLAAP] and discuss the applicability of these to their individual institutions.

To find out more about the course director please fill in a brochure request.

The venue of the training is always in a centrally located 4-5 star hotel. The venue is confirmed 2 weeks before the programme once registration is closed and we know the exact number of delegates attending. We have exclusive rates with the hotel, if you require accommodation during the programme.

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£2750 GBP
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