1 Austrian Workshop on Credit Risk Management Keynote Address Andreas Ittner Director Oesterreichische Nationalbank Vienna, 1 February, 2001

2 Basel II - Objectives Promote safety and soundness in the financial system Maintain the current level of capital in the system Enhance competitive equality More comprehensive approach to addressing risks Appropriately sensitive to the degree of risk involved in a bank's positions and activities Focus on internationally active banks Underlying principles suitable for banks of varying levels of complexity and sophistication

3 Basel II - Evolutionary Approach Banks should move from standardised methods to internal measurement methods Banks should move from basic internal measurement methods to more advanced internal measurement methods Improvements in risk measurement and management will pave the way for capital adequacy regulations based on credit risk models

4 Basel II - General Structure Minimum Capital Supervisory Review Market Discipline Capital adequacy

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6 Basel II - Credit Risk (Pillar I) Minimum Capital Supervisory Review Market Discipline Capital adequacy Operational Risk Standardised Approach Credit Risk Mitigation Internal Ratings Based - Approach

7 Basel II - Credit Risk (Pillars II & III) Minimum Capital Supervisory Review Market Discipline Capital adequacy Internal Capital Adequacy Assessments and Strategies Compliance with Minimum Standards in Pillar I Information on Credit Risk for Market Participants

8 Integrated Credit Risk Management Credit Risk Strategy and Policies Credit Granting Process Credit Risk Control Credit Risk Measurement and Capital Adequacy Credit Administration, Measurement and Monitoring Process

9 Basel II - Supervisory Implications More risk sensitive capital requirements Enhanced stability of the banking and payment systems Bank's risk positions and strategies become more transparent Methods of risk assessment and risk measurement become more comparable Common best practices in risk management to be developed (methods, data, instruments, documentation, products)

10 Basel II - Future Agenda Robust measurement of PD, LGD, EAD and maturity based on reliable data (pools) and best practice methods applicable in daily credit risk management transparency for supervision and monitoring enhance liquidity of credit products Credit risk models....until after 2004