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Regulators are concerned with the solvency of financial institutions. The likelihood of ‘default’ (i.e. insolvency) is often considered specific to a particular institution and the assets that it holds. Post the 2008 financial crisis, the systemic impact of default has also emerged as an important theme. Regulatory sign-off on capital stress tests is now required before dividend payments or share buyback. As global regulations become more rigorous, banks, credit unions, and other regulated entities are accelerating efforts to develop capital management systems to analyze and process large amounts of data with speed and accuracy.
BBA solves enterprise regulatory change management in many different ways. From implementing agile technology to the functionalization of stress testing, BBA's strategic approach to implementing regulations is designed to work with our clients' budgets. With a focus on quick-wins, our team of experts develops verifiable calculation engines and sandboxes aimed at creating transparency for stakeholder buy-in. To maximize ROI, we integrate capital management systems with the business-as-usual functionality of the Risk and Treasury departments.
Basel Compliance
Basel is a set of international banking regulations put forth by the Basel Committee on Bank Supervision, which sets out the minimum capital requirements of financial institutions. Basel regulatory compliance applies to the following financial institutions:
- Commercial banks
- Savings banks
- Credit institutions
- Investment firms
- Credit unions
The purpose of Basel II, which was initially published in June 2004, is to set risk and capital management regulations to ensure that regulated entities hold capital reserves appropriate to the risk they are exposed to through lending and investment practices. Basel rules mean that the greater risk the bank is exposed to, the greater the capital needed to safeguard bank solvency and overall economic stability. Basel II is a 3-pillar concept with each pillar targeting different requirements.
BankingBook offers agile solutions for regulatory intelligence and change. Whatever your Basel implementation challenge, we have the expertise and proven track record to build the right tools for your business that will help drive business change and improve processes.
BankingBook offers up-to-date coverage of Basel versions. Thematically, our coverage includes:
- Measurements: From the definition of risk materiality and risk profiling to measurement, testing, and validation of risk models.
- Capitalization: Capitalization and delineation of capital based on material risks and assignment of buffers.
- Reporting: Developing internal and external reporting templates, policy upgrades, and risk dashboards.
Implementation of the Federal Reserve’s Requirements
Financial services institutions are increasingly relying on stress tests to assess capital adequacy. BankingBook is at the forefront of models’ validation, stress testing, and revenue and PPNR modelling. Employing strong project management skills and comprehensive modelling knowledge, BBA uses a broad spectrum of quantitative and qualitative (expert business judgment) approaches and continues to refine them through collaboration with a range of banks and credit unions in North America. Key dimensions of our coverage are:
Stress Testing (SR 12-07, SR 15-18, SR 15 – 19)
Our deep knowledge of stress testing helps clients meet, one-off, and on-going compliance requirements. Our expert modellers add value through the entire spectrum of CET1 stress testing that includes, for example:
- Understanding and diagnostics of the capital base
- Pre-Provision Net Revenue and robust approaches to stress testing
- Integration of CECL and CCAR risk management
- Risk-weighted assets estimation and optimization
- Growth in the portfolio under basic and stress conditions
- Improved data management programs
Download the SR 12-07 at federalreserve.gov .
Download the SR 15-18 at federalreserve.gov.
Download the SR 15-19 at federalreserve.gov.
Implementation of IFRS 9 and CECL Requirements
We have been working with organizations since the early stages of the IFRS 9 standard and its US counterpart Current Expected Credit Loss (CECL), resulting in an in-depth understanding of the impact of the regulatory and global accounting changes. We have built an extensive range of experience that helps us implement and deliver bespoke and flexible solutions that minimize the additional workload. Our consultants add value to teams by leveraging that experience, both in terms of scale and range across different portfolios and, where appropriate, facilitating the transfer of skills to a client’s in-house analysts.
Independent Models Validation
Our clients are searching for a partner firm that can provide cost-effective, independent, expert advice on models’ validation. Their requirements for external assistance could be at the design, implementation, or documentation stage or with an internal audit process. Clients benefit from outsourcing and automation by reducing FTE time spent on validation. Some of the assistance options include:
- Outsource model validation process, covering IFRS 9, CECL, and Basel models in compliance with SR 11-7, PS7/18, and TRIM.
- Access to our distributed validation platform that is capable of analyzing large datasets. Our platform can be deployed on-premise as well as made available on the cloud. We are fully GDPR/ISO 27001 compliant.
- Models inventory and risk assessments: BBA’s professionals can help you rank models by risk level to obtain a true view of your enterprise model risk and manage those risks accordingly.
- Model validation: Verify that models (such as ones for value at risk, IFRS 9/CECL, capital models, or anti-money laundering) perform as expected. BBA’s validation approach is checklist-based; aligned with model risk management guidance from the Office of the Comptroller of the Currency and the Federal Reserve.
- Model governance: Combining sound model risk management practices with internal audit expertise, we execute tailored, risk-based internal audit programs to identify control gaps and provide valuable recommendations.
- Model refinements: Our modelling specialists help refine models identified for improvement, including fine-tuning the calibration, providing documentary evidence to demonstrate to regulators and auditors that risks are being monitored at appropriate levels.
- Documentation: BBA delivers regulatory compliant documentation generated by our ModelTek platform that can be customized and shared
Access to our distributed validation platform that is capable of analyzing large datasets. Our platform can be deployed on-premise as well as made available on the cloud. We are fully GDPR/ISO 27001 compliant.
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ModelTek is an industry-leading platform designed to industrialize model risk management for the second and third lines of defense. Regulators and auditors across the globe are consistently asking for more in-depth and more frequent model validation. The risk of non-compliance with regulatory standards, such as IFRS 9, SR 11-7, BCBS 350, and BCBS 223 is severe.