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

2. 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

3. 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

4. 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

5. Core Tier1 Capital Level of US largest banks

6. Core Tier1 Capital Level of European largest banks

7. Core Tier1 Capitals Level for Asian Banks