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14.10.2019
Basel IV - data from a bank's perspective

This blog discusses the impact that the December 2017 Basel reforms will have on the way banking institutions are going to use their data when constructing their credit risk models. Whilst these changes are not going to impact every financial institution in exactly the same way and the bigger institutions that make use of IRB approach will be affected disproportionately harder, this article provides a description of all major Basel IV data elements that all banking institutions will have to account for and in what way. These elements include: External Ratings, Collaterals Sourcing, Credit Conversion Factor (CCF), SME Indicator, Revolver/Transactor Indicator and others. Coordinates to the specific regulatory pieces are provided if you are interested in exploring any particular topic in greater detail.

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27.08.2019
The Language War in Credit Risk Modelling: SAS, Python or R?

The three languages were compared using a simple setup, as close as possible to a real-life situation. The exercise consisted in calibrating a logistic regression to identify loans likely not to be repaid on time in a sample dataset. The choice of logistic regression was driven by the fact that it is a simple but powerful approach still widely used in the industry.

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06.08.2019
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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09.07.2019
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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08.07.2019
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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05.03.2019
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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19.02.2019
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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01.10.2018
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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03.09.2018
Independent Valuation of structured products and complex OTC Derivatives

This expert input addresses the independent valuation of structured products, and particularly of OTC derivatives. It explains for what reasons and under what conditions independent valuation is necessary and lists all other potential advantages of performing valuation independently. It further reveals how valuation is generally performed and all the necessary steps that need to be taken in order to make sure that the valuation is the best possible and unbiased estimate of the value of the assets. It shows the greatest challenges in valuation and how we, in Finalyse, seek to address them.

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04.06.2018
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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