BASLE 3 (Over Basle2) PHILIPPE CARREL RISK INTELLIGENCE FOR GOVERNANCE & COMPLIANCE

BASLE 3 (Over Basle 2) Quality and consistency of capital base T1 Equity from 2.5% to 4.5% Total T1 from 4% to 6% Total 8% + Conservation Buffer 2.5% = 10.5% T3 abolished Counter-cyclical measures Capital buffers from 0% to 2.5% to limit excess credit and leverage Probability of Default (PD) and Exposure At Default (EAD) computed over long term Expected Loss (EL) to replace IAS39, potentially VaR Leverage ratio Ratio added to Pillar1 calculated with credit conversion factors Focus on off-balance sheet items Trial ratio is 33 times of Tier1 limit Enhanced risk coverage Stressed VaR (includes periods of stress) Credit Value Adjustment (CVA net DVA ) to represent counterparty risk in market exposure Centralised clearing counterparties Global Liquidity Standard (BCBS 165) LCR and NTF ratios SIFIs Additional buffers and living wills

NEW REGULATORY REQUIREMENTS Liquidity Coverage Ratio (LCR) Can the firm survive 1 month of acute stress scenario involving Credit downgrade of the firm Partial loss of deposits Loss of unsecured wholesale funding Increase in secured funding haircut Derivatives collateral margin call Net Stable Funding Ratio (NSF) Asset / Liability structure to ensure 1 year of stability Common monitoring metrics Maturity mismatch Concentration of funding Available unencumbered assets Market related monitoring tools

POTENTIAL IMPACT OF BASLE 3 Surge in RWA due to stressed assumptions on risk Standard Chartered said would need $5.3bn in right issue UBS said the change would double RWA (CHF 400bn) Morgan Stanley 80% Credit Suisse estimates an increase of 70% Deutsche Bank predicts 50% JP Morgan, 36% Higher Costs Centrally cleared derivatives will require operating costs and margin management “Skin in the game” in securitisation Counter-cyclical measures Probability of Default (PD) and Exposure At Default (EAD) computed over long term Expected Loss (EL) to replace IAS39 Capital buffers to limit excess credit and leverage Global Liquidity Standard Push back on NTF ratios

Core Tier1 Capital Level of US largest banks

Core Tier1 Capital Level of European largest banks

Core Tier1 Capitals Level for Asian Banks