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Enhancements to Basel II

Enhancements to Basel II. Hassan Nasser Compliance & Inspection Director Dubai Multi Commodities Centre. Enhancements To Basel II. Basel Committee is responding to the financial crisis by strengthening the Basel II framework. Enhancements to Pillar 1.

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Enhancements to Basel II

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  1. Enhancements to Basel II Hassan Nasser Compliance & Inspection Director Dubai Multi Commodities Centre

  2. Enhancements To Basel II • Basel Committee is responding to the financial crisis by strengthening the Basel II framework

  3. Enhancements to Pillar 1 • Strengthening the risk capture of Basel II framework • CDOs of ABS – Re-securitization are highly correlated with systematic risk • It warrants higher capital charge

  4. Enhancements to Pillar 1 • Increasing the capital requirement for Liquidity lines extended to support ABCP by eliminating the distinction between short-term and long-term facilities

  5. Enhancements to Pillar 1 • Banks must obtain comprehensive information about the underlying exposure characteristics of their externally-rated securitization positions • Failure of which would result in higher capital requirements

  6. Enhancements to Pillar 2 • Firm-wide governance and risk management • Understanding the firm-wide risk profile • Aggregate firm-wide exposure information in a timely manner using easy to understand and multiple metrics • Considering long term performance over the cycle

  7. Enhancements to Pillar 2 • Firm-wide governance and risk management (contd.) • Set clear incentives in accordance with the stated risk appetite

  8. Enhancements to Pillar 2 • Capturing the risk of off-balance exposures and securitization activities including: • Contractual risk • Non-contractual commitments • Implicit support • Reputational risk

  9. Enhancements to Pillar 3 • Disclosures will include: • Securitization exposures in the trading book • Sponsorship of off-balance sheet vehicles • IAA for securitization and other ABCP liquidity facilities • Re-securitization exposures

  10. Enhancements to Pillar 3 • Valuation with regards to securitization exposures • Pipeline and warehousing risk with regard to securitization exposures

  11. Thank You

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