A Basel II Approach by Alexandra Lederer-Ponzer Oracle EMEA Risk & Compliance Solution Centre 22 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

Basel II Why Oracle?

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

Oracle has the Experience ... > 200 customers use Oracle Financial Services Applications (OFSA) for Data Management Financial Management and Reporting As a first step towards ‘Risk Adjusted Performance Management’ (RAPM) Bank of Tokyo-Mitsubishi

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

Reveleus Financial Services Analytics Enterprise Risk Management Enterprise Financial Performance Treasury Analytics Funds Transfer Pricing Asset Liability Management Market Risk Analysis * Management Reporting Product Profitability Organizational Profitability Customer Profitability Credit Risk Retail Credit Risk Analysis Corporate Credit Risk Analysis Operational Risk Reveleus ORTOS Finance Funds Transfer Pricing Budgeting and Forecasting GL Consolidation Compliance Reveleus Basel II Solution Customer Insight Marketing Specialized Analytics Customer Lifetime Value Campaign Management Customer Segmentation Cross Sell / Up Sell Channel Analytics Customer Profitability Credit Cards Mortgage

Reveleus - Basel II Coverage Pillar I : Capital Adequacy Calculations Credit Risk Market Risk Operational Risk Calculation of Exposure Calculation of PD / LGD Calculation of RWA Value at Risk Support for all 3 approaches Standardized Measurement Methods Adjustment for Collateral Valuation Supervisory Risk Weights and LGD 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 Adjustment for Credit Mitigants Interest Rate Risk Calculation of Risk Weights based on PD & LGD Equity Position Risk Netting Balance Sheet Items Foreign Exchange Risk External / Internal Rating Systems Commodities Risk Standardized Approach Internal Ratings Based Approach (Foundation) Internal Ratings Based Approach (Advanced) Treatment of Options Pillar II : Supervisory Oversight Pillar III : Market Discipline Usage of Metadata Transparency Capital Adequacy Reporting Flexible Reporting Rules Based Engine Risk Assessment Reports Quantitative Disclosures Qualitative Disclosures

Reveleus supports all Basel II Approaches for 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 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

Reveleus Basel II Solution Multi-Jurisdiction capital computation Easy parameterisation of Approaches for multiple national discretion overrides by business users Multi-Entity capital computations Based 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 Business User Baseline Run Simulation Run Simulation Outputs Baseline Exposure Rules Collateral Rules Credit Mitigation Rules Securitization Rules RWA Computation Rules Optimization Engine Regression Analysis Naïve Bayes Distribution Fitting PD Estimation LGD Estimation Allocating Mitigants to Exposures Reveleus Unified Metadata Centralized Business Definitions – s, Metrics, Reports Reveleus Data Structures Pre-Built Global Banking Data Model Modeling Framework Rules Run Applications Models Pillar II Reporting Templates Pillar I Reporting Templates 3rd Party Reporting Tool Support Pillar III Reporting Templates Reporting Scenarios Filters

Reveleus – Capital Computations Ratings Maturity (M) PD Calculation LGD Netting Off Balance Sheet Off Balance Sheet K irb Credit Enhancement Level Granularity Thickness Q-Value CREDIT RISK Rating

Reveleus Risk Solutions End State Vision Enterprise Risk Infrastructure 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 Risk Repository Capital Computation Home/Host Reporting PD / LGD Estimation Credit Rating RetailCredit Risk Corp. Credit Risk Market Risk FTP Reveleus Enterprise Risk Reveleus Basel II Solution Loan Systems Collateral Systems Information Vendors Treasury Systems General Ledger Economic Capital EDW Rule/Run Framework Enterprise Risk Business Metadata Risk Based Pricing RWA OpRisk Data Ops Risk

Thank you ! For further information pls. contact alexandra.lederer-ponzer@oracle.com 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.