oracle – a basel ii approach 22 nd feb 2006 1 a basel ii approach by alexandra lederer-ponzer...

1Oracle – A Basel II Approach 22nd Feb 2006

A Basel II Approachby

Alexandra Lederer-PonzerOracle EMEA Risk & Compliance

Solution Centre

22 Feb 2006

Oracle – A Basel II Approach 22nd Feb 2006

Basel II

be competitive!be compliant!


The Basel II Accord• Pillar I – Minimum Capital Requirements

• Credit Risk• Standardised Approach• Internal Ratings Based Approach

• for Non Securitisation Exposures• Foundation IRB + Advanced IRB

• for Securitisation Exposures• Ratings-Based Approach, Internal Assessment Approach (IAA), Supervisory Formula (SFA)

• Market Risk (unchanged)

• Standardised Approach + Internal Models Approach

• Operational Risk• Basic Indicator Approach• Standardised / Alternative Standardised Approach• Advanced Measurement Approach

• Pillar II – Supervisory Review• Transparency + Consideration of other Risk Areas (IRRBB, Liquidity Risk, …)

• Pillar III – Market Discsipline• Disclosure Reporting (Central Bank Reporting)


Basel II Challenges for Banks

• Data Management• For Pillar I Regulatory Capital Calculations• For Pillar II Transparency and Other Risk Management Areas (IRRBB,

Concentration Risk, etc.)• For Disclosure Reporting (Central Bank Reporting) Availability of Data, Data Quality and Efficient Data Management are

KEY!

• Risk Analytics• Pillar I Credit, Market & Operational Risk Analytics to compute

Regulatory Capital • RW, RWAs, Regulatory Capital Computation• PD/LGD estimation for IRB Aproaches

• Economic Capital Calculation Requirements

• Reporting• Pillar III - Disclosure Reporting - Be compliant• Pillar II – Transparency Reporting, Auditing• Pillar I plus internal Reporting Requirements

Oracle – A Basel II Approach 22nd Feb 2006

Basel II

Why Oracle?


Oracle understands the FS Business...Oracle Financial Services Applications (OFSA)

DataIntegration

DataIntegration

Design and AdministrationDesign and AdministrationDesign and Administration

Meta DataMeta Data

InformationDelivery

(iPortal)

InformationDelivery

(iPortal)

OFDMOFDMGLGL

SyndicatedSyndicatedDataData

Operational Operational SystemsSystems

Risk Risk SystemsSystems

OFSAOFSA Other Other AnalysesAnalyses

ExternalExternalReportingReporting

PerformancePerformanceManangementManangement

InterConnect

Collect and Store

Calculate

Report

DataIntegration

DataIntegration


Meta DataMeta Data

InformationDelivery

(iPortal)

InformationDelivery

(iPortal)

OFDMOFDMGLGL





ExternalExternalReportingReporting

PerformancePerformanceManangementManangement

InterConnect

Collect and Store

DataIntegration

DataIntegration

DataIntegration

DataIntegration


Meta DataMeta Data

InformationDelivery

(iPortal)

InformationDelivery

(iPortal)

OFDMOFDMGLGLGLGL







Risk Risk SystemsSystemsRisk Risk SystemsSystems

OFSAOFSAOFSAOFSA Other Other AnalysesAnalyses

Other Other AnalysesAnalyses

ExternalExternalReportingReportingExternalExternal

ReportingReporting

PerformancePerformanceManangementManangementPerformancePerformanceManangementManangement

InterConnect

InterConnect

Collect and Store

Calculate

Report


• > 200 customers use Oracle Financial Services Applications (OFSA)

• for 1. Data Management

2. Financial Management and Reporting

3. As a first step towards ‘Risk Adjusted Performance Management’ (RAPM)

Bank of Tokyo-Mitsubishi

Oracle has the Experience ...


Basel II – complex or easy?

‚Reveleus Basel II Solution‘ is a flexible, easy to use solution for the computation of Capital Charges


Enterprise Risk Management

EnterpriseFinancial

Performance

Treasury Analytics

Credit Risk

Operational Risk

Compliance

Management Reporting

Finance

Customer Insight Marketing

Specialized Analytics

Customer Lifetime Value Campaign Management Customer Segmentation Cross Sell / Up SellChannel Analytics Customer Profitability

Reveleus Basel II Solution

Reveleus ORTOS

Funds Transfer PricingAsset Liability ManagementMarket Risk Analysis *

Retail Credit Risk Analysis

Corporate Credit Risk Analysis

Product ProfitabilityOrganizational ProfitabilityCustomer Profitability

Funds Transfer PricingBudgeting and ForecastingGL Consolidation

Credit CardsMortgage

Reveleus Financial Services Analytics


Pillar I : Capital Adequacy CalculationsPillar I : Capital Adequacy Calculations

Credit RiskCredit Risk Market RiskMarket Risk Operational RiskOperational Risk

Calculation of

Exposure

Calculation of

Risk Weights based on PD & LGD

Adjustment forCollateral Valuation

Adjustment forCredit

Mitigants

Netting Balance Sheet

Items

External / InternalRating Systems

Supervisory RiskWeights and LGD

Value at Risk

Interest RateRisk

Support for all 3 approaches

Basic Indicator Approach: Capital Calculated as a percentage of Gross Income

Standardized Approach: Line of Business Based Exposure Indicators

Advanced Measurement Approach: Capital computation as per LDA

Standardized ApproachInternal Ratings Based Approach (Foundation)Internal Ratings Based Approach (Advanced)

Standardized Measurement

Methods

Pillar II : Supervisory OversightPillar II : Supervisory Oversight Pillar III : Market DisciplinePillar III : Market DisciplineUsage of Metadata Transparency

Rules Based Engine

Capital Adequacy Reporting

Quantitative DisclosuresRisk Assessment Reports

Flexible Reporting

Qualitative Disclosures

Equity PositionRisk

Foreign ExchangeRisk

CommoditiesRisk

Treatment of Options

Calculation of

PD / LGD

Calculation of

RWA

Reveleus - Basel II Coverage


Reveleus supports all Basel II Approachesfor Credit Risk

Non-Securitisation Exposures• Standardised Approach

• Collateral Handling & Optimisation• Simple and Comprehensive

• Internal Ratings Based (IRB) Approaches• Incl. Specialized Lending• Incl. Equity using PD/ LGD Approach• Incl. Equity using Simple Approach

Securitisation Exposures• Standardised Approach• RBA (Ratings Based Approach)• SFA (Supervisory Formular Approach)• IAA (Internal Assessment Approach

Capital Computation as per Basel I


Reveleus Basel II Solution supports

Computation of Capital Charges for (see Q10)

• Credit Risk• See previous slides

• Market Risk• using Market Risk VaR inputs for the capital computation• For Standardised Approach with next Release 3.0 (May 2006)

• Operational Risk• For Basic Indicator Approach• For Standardised and Alternative Standardised Approach• Using Op Risk VaR inputs for AMA • Using Reveleus ORTOS for Op Risk Modelling and to track op risk data

by business lines, etc.

Computation of Qualifying Capital (Tiers 1, 2, 3)

Computation of Economic Capital



Multi-Jurisdiction capital computationEasy parameterisation of Approaches for multiple national

discretion overrides by business users

Multi-Entity capital computationsBased on different approaches per entity

Simultaneous capital calculations of the same portfolio based on different approaches

Multi Currency Transactions

Statistical estimation of PD and LGD

Stress Testing, Back Testing, Scenario Simulations

Collateral Optimisation

User Access in multiple languages

100% Web-based, using a user-friendly User Interface


Reveleus Basel II Solution Components

BusinessUser

Baseline Run

Simulation Run

SimulationOutputs

BaselineOutputs

Exposure RulesExposure Rules

Collateral RulesCollateral Rules

Credit Mitigation Rules

Credit Mitigation Rules

Securitization RulesSecuritization Rules

RWA Computation Rules

RWA Computation Rules

Optimization Engine

Regression AnalysisRegression Analysis

Naïve BayesNaïve Bayes

Distribution FittingDistribution Fitting

OptimizationOptimization

PDEstimation

PDEstimation

LGDEstimation

LGDEstimation

Allocating Mitigants to Exposures

Allocating Mitigants to Exposures

Reveleus Unified MetadataCentralized Business Definitions – s, Metrics, Reports

Reveleus Data StructuresPre-Built Global Banking Data Model

Modeling Framework

Rules Framework

Run Framework

Applications

Models

Pillar IIReporting Templates

Pillar IReporting Templates

3rd Party Reporting Tool Support

Pillar IIIReporting Templates

Reporting Framework

ScenariosScenariosScenarios Filters

Filters


Ratings

Maturity (M)

PD Calculation

LGDCalculation

NettingOff Balance Sheet

Ratings

NettingOff Balance

Sheet

K irb

CreditEnhancement

Level

Granularity

Thickness

Q-ValueMaturity (M)

Ratings

CREDITRISK

Rating

Reveleus – Capital Computations


Reveleus Risk Solutions End State Vision

Enterprise RiskInfrastructure Reveleus Risk Applications

Reporting & Analysis

Security & Operational Framework

Transparency of Process, Models & Output

Internal Reporting& Analysis

Aggregated & Relational Reporting

Capital Adequacy Reporting

External Reporting

Local Regulator Reporting

ALM

Enterprise RiskRepository

CapitalComputation

Home/Host Reporting

PD / LGD Estimation

Credit Rating

RetailCredit Risk

Corp.Credit Risk

Market Risk

FTP

Reveleus Enterprise Risk


Loan Systems

Collateral Systems

Information Vendors

TreasurySystems

General Ledger

Economic Capital

EDW

Rule/Run Framework

Enterprise Risk Business Metadata

Risk Based Pricing

RWAComputation

OpRiskData

Ops Risk


Thank you !For further information

pls. contact

[email protected]

My personal note:

Basel II is about standard business rukes defined by BIS II and EU/CRD.

A standard solution provides ease of use and the necessary flexibility for business users to modify these business rules if required by the local regulator.

oracle – a basel ii approach 22 nd feb 2006 1 a basel ii approach by alexandra lederer-ponzer...

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