A fresh take on risk and valuation
We keep moving forward, opening
new doors and doing new things,
because we are curious, and curiosity keeps
leading us down new paths.
August 06, 2019
New Definition of Default: Insight on Challenges to Implementation

The NDoD is expected to increase the comparability of risk parameters and own funds requirements, particularly for those financial institutions already applying the IRB method. It will also impact the own funds requirements under both the IRB Approach and the Standardized Approach. Depending on the high gaps between the institutions’ current definition and the new one, the effect may be considerable. Given the magnitude of effort banks are expected to put into integrating the new rules of default identification and exit into their internal procedures and IT systems, the deadline of 1st January 2021 is challenging.

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July 09, 2019
A guide to Solvency II review

This expert article on the 2018 Solvency II review consists of a high level summary of the Solvency II review and a table providing a detailed overview of all changes brought about by this 2018 Solvency II review.

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July 08, 2019
Adjustment for the loss-absorbing capacity of deferred taxes

This blog post dives deeper into the topic of Adjustment for the loss-absorbing capacity of deferred taxes.

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March 05, 2019
Reverse Stress Testing

This Expert input discusses reverse stress testing. A type of stress testing that does not ask what the results of certain pre-defined shocks are going to be, but rather, what shocks would have to happen in order for a pre-defined scenario to occur. The reverse stress testing is a tool complementing the normal stress tests, very much required by the regulators. Nevertheless, it is seldom addressed by official documents and serves like a bit of an enigma, even to the institutions that are legally obliged to conduct it. This expert input does not only discuss the regulatory requirements inherent to the stress testing, but also, how Finalyse typically sets to carry out the reverse stress testing.

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February 26, 2019
The ECB 2019 Regulatory Priorities

Following the ECB’s publication of its supervisory priorities, this expert input examines them to a somewhat greater depth. The ECB list of priorities may indicate where the future development of new financial sector regulation will occur later this year. Whilst we provide an exhaustive account on all ECB financial supervisory ambitions as expressed in their released documents, we also offer a particular descriptive and analytical input on the topics of credit underwriting criteria, NPL’s, Targeted review of internal models (TRIM), and a small section on valuation with most of our own input concentrating on the credit-risk related items. We put a greater focus on these areas in this text for a simple reason: they are also our greatest expertise.

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February 19, 2019
An Update on SFT Regulation

The regulation of SFTs has been with us since late 2015. By far its most challenging part, however, the reporting has not yet come into play as many of its aspects had to be further specified by RTSs and ITSs. With these technical standards suddenly reappearing in the mid 2018 and on course of being implemented, this expert input gives a broad overview of SFTR in its entirety and delves deeper into the novel reporting obligations, which it compares with the reporting obligations under EMIR. It discusses the main challenges of implementing the reporting standards, particularly for the institutions that have no prior experience with reporting under EMIR.

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October 01, 2018
Basel III: Operational risk in Banking

This Expert input is a follow-up to a previous expert input on finalising Basel III, this time with a focus on operational risk – an unsung villain of risk management. It gives a brief overview of the history of operational risk management and shows how exactly the crisis motivated a multitude of measurement approaches at the beginning (AMA) in particular, and their subsequent standardisation in Standardised Measurement Approach (AMA). There is a detailed outline of how the AMA formula works and a short discourse on output floor.

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August 01, 2018
2018 stress tests: evolution, revolution or a chimera?

This Expert input examines EBA stress test. It provides a basic intuition behind the stress test – what it is and what purpose it is serving. It also addresses the general changes between current 2018 and 2016 stress test, how IFRS 9 has impacted the process and results – if at all – and just how much the scenarios changed. It delves into more detailed measurement, considering indicators individually for different risk types such as credit risk, market risk or operational risk, again stating the general intuition behind the methodology for each, and it explains the extent to which there have been any changes compared to the past. Lastly, it lists potential challenges with conducting stress tests and tips and tricks for overcoming them.

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June 04, 2018
Basel III: Finalising post-crisis reforms

This is an extensive overview of most of the major changes to Basel II since its original publication. It focuses particularly on the changes brought about by the December 2017 release, especially on credit risk and RWA, changes to both standardised and IRB approaches of calculating RWA and whether the latter is allowed to be used or not. It also discusses the floored inputs. The next section discusses Market Risk and consequently FRTB. It gives a summary of the fundamental changes and then dwells deeper into the specific changes in standardised approach and internal models approach. The last part focuses on Interest Rate Risk in the Banking Book – more specifically on the governance, measuring and modelling of the IR risk and changes to the disclosure requirements. This paper does not address Operational risk as it is addressed elsewhere.

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May 02, 2018
Collateral management, a revolution already under way

This article – a courtesy of our partners from Clearstream, focuses on collateral management as a part of derivatives trading, in light of the adoption of EMIR. It discusses the general landscape of markets in OTC and non-OTC derivatives, as well as the main collateral related topics – variation margin and initial margin, but also challenges in exchanging collaterals. There is a sizable list of suggestions on how to deal with said challenges and how to generally move in this landscape and how to navigate the regulatory requirements as well as scramble for liquidity. It ends with a short note on TARGET-2 and the way it has helped to simplify the collateral challenge.

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