MLRO and MLCO Induction

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Course Content

• The Basel I Accord
  • Background and scope
  • Mechanics: a definition of capital, provisions & risk weights
  • Risk weights, credit conversion factors & return on equity
  • Success and limitations

• Credit risk management practices at best practice banks
  • Internal credit ratings
  • Economic capital
  • Expected and unexpected losses
  • Rorac /Raroc concepts
  • Pricing as a credit issue
  • Credit models
  • Credit portfolio management

• The Basel II Accord
  • Objectives and how the Accord seeks to achieve them
  • Credit and operational risk vs. other risks
  • The three pillars system

• First pillar: capital requirements
  • Credit risk
  • The first pillar: minimum capital requirements
  • Three approaches: standardised, foundation and advanced
  • The risk weight function: PD, LGD and EAD.
  • Rules for sovereigns, banks and corporates / retail
  • Practical implications for business lines, capital allocation & pricing of transactions-exercises

• Credit risk mitigation
  • The different approaches
  • What has changed? Impact on deal structuring

• Special credit exposures
  • Specialised lending sub-classes
  • Rules for equity exposures
  • Rules for purchased receivables
  • Rules for securitisations

• Market risk
  • Changes to the 1996 Amendment
  • Capital requirements: general market risk and specific risk
  • Standardised approach and VaR models

• Operational risk
  • The three approaches
  • Qualifying criteria

• Pillar 2: bank supervision

• Pillar 3: market discipline

• The 2009 amendments

Learning Outcomes

By the end of the course participants will be able to:

• Know the main risk management issues and techniques and how Basel II approaches them

• Calculate capital requirements, price transactions and calculate returns

• Use credit mitigation techniques to minimise capital and increase returns