Role of Treasury in Future Banking Impact of Financial Market Crises and Banking Regulation on Bank’s Treasury Equity capital – Quantitative Increase (Basel 2 / 3) Banks will have to reach 13 – 15% equity level * Basel II Basel III Stress test result Buffer Variable Buffer (Common Equity) 13 % Fixer Buffer 2,5% (Common Equity) 10,5% 8% Tier 2 4% Tier 2 2% Additional Tier 1 1.5% Minimum Additional Tier 1 2% Minimum (Common Equity) 2% Minimum Tier 1 (Common Equity) 4.5% * Finance Trainer guess Liquidity Management - Normal and Stress Case BALANCE Operational liquidity Structural liquidity Liquidity reserves today 1 2 3 12 months > 20 years Balance = (assets – liabilities aggregated) incl. new business assumptions Balance = (assets – liabilities aggregated) normal case without new deals Balance = (assets – liabilities aggregated) stress case – bank’s individual scenarios Principles of Basel 3 / EBA (CEBS) / CRD IV: 1 month minimum liquidity in stress case → sufficient Liquidity buffer (reserves) are necessary Treasury in (Basel 2/3) Regulation Environment Regulation framework Basel 3 Total bank management Basel 3 increases equity requirement for: Earnings Optimal RORAC Open risk Specific risk Risk FX Customer business Interest Basel 3 Liquidity Credit Replacement risk Treasury business → Risk → ALM → Sales → Trading Finance Trainer 2010 TRANSFER RATES Overview: Changes in Treasury business TODAY Basel 3 / CRD IV Standard Term Bank Method No change Internal Model 10 D VaR 99% x F (3-4) 10 D VaR x F + 10 D Stress VaR x Factor Standard Referred to Rating 4% shares cancelled 8%; Sec./Resec Internal Model Included in general risk add. Incremental Risk (99,9%/1 year); Sec./Resec. according to table Term band method e.g. interest 1% p.a. add. Bond Equivalent (Credit Value Adjustment) Mark to Market approach MTM + Add On add. Bond Equivalent (Credit Value Adjustment) Expected positive Exposure (EPE) VaR 10 D (99%) Stress VaR 10 D (99%) add. Bond Equivalent (Credit Value Adjustment) General risk Specific risk Replacement risk OTC/SFT* * Security Financing Transaction (e.g. Repos) Consequences for Treasury Business • • • • • • • • • • Capital Requirements Liquidity Requirements (LCR & NSFR) CVA (Credit Value Adjustment) EAD (Exposure at Default) Internal model approach (IMA) Incremental Risk Charge (IRC) Stress VaR Central Clearing Party (CCP) Higher Basis Risks Financial Transaction Tax → Trading • Big Trading Books less attractive • Higher spreads / more documentation → Assets and Liabilities Management • Relocation of main Treasury activities to ALM • Conservative Banking Book positions • Professional Banking Book management needed → Sales • More expensive instruments • Replacement risk becomes very important → Risk • More complex calculations • More limits / more work ACI Adjustments (Exams Update) ACI Dealing Certificate will change: A new topic basket “Asset & Liability Management” will be added to the Dealing Certificate syllabus The existing topic basket “Principles of Risk” will be revamped The new syllabus will become effective on 1 August 2013 The existing topic basket “Model Code” will be adapted to the newly written Model Code ACI Model Code Examination will be available again The ACI Diploma will be restructured (see graphic next page).Candidates will have to pass two mandatory units plus one elective unit in order to be eligible for the ACI Diploma ACI Operations Certificate - The new FX Best Practices Operations of the Model Code will be integrated The New ACI Diploma Structure Copyright: All rights reserved. The copyrights and rights of use regarding the content of this presentation remain with Finance Trainer International Ges.m.b.H. Neither this presentation nor any of the presented ideas and/or solutions may be used, published, reproduced, stored in a retrieval system, transmitted to third parties in any form or by any means, electronics, mechanical, photocopying, recording or otherwise without the prior permission of Finance Trainer International Ges.m.b.H. All calculations were undertaken to the best of our knowledge. Errors and misprints excepted. Prices are subject to alteration without notice.