Basel Bank Capital Adequacy (Basel II, III, & IV)

Basel II strengthens the international banking system by requiring capital for credit, market, and operational risks, organized into three pillars: minimum capital, supervisory review, and market discipline.

Basel II enhances risk sensitivity by introducing three pillars: pillar one capital for asset risk, pillar two a robust risk management framework and supervisory review, pillar three public disclosures.

Explore credit risk—the risk banks face when borrowers cannot repay—and how standardized and internal rating based approaches affect risk weighted assets and capital requirements, distinguishing it from default.

Apply the Basel II standardized approach, using external ratings and regulatory risk weights for wholesale and retail exposures. Compare its simplicity with the internal rating-based method to enhance risk sensitivity.

Compare two risk weighting approaches for public sector entity exposures under Basel II–IV: sovereign-based weights by rating and long-term bank claim weights. Choose the approach based on each bank's circumstances.

Explore how to risk weight exposures to multilateral development banks under the standardized Basel approach, including weights and the 0% eligibility criteria for MDBs such as IBRD, IFC, and EBRD.

Compare two approaches to risk weighting bank exposures under Basel II–IV: fixed risk weights by rating, and counterparty risk weights by maturity and rating; the best choice depends on circumstances.

Explore two Basel risk-weighting options for corporates: external ratings with tiered weights, or a uniform 100% weight for all corporate exposures, noting insurance exposures are treated as corporates.

Explore how Basel II, III, and IV define retail exposures and apply 75% risk weight when four criteria: orientation, product, granularity, and low exposure value, are met; otherwise, 100% applies.

Learn to assign risk weights to past due exposures by provisions and exposure type, where past due means nonpayment beyond 89 days or 179 days, with weights 100%/150% or 50%/100%.

Covers Basel II to IV risk weighting for high risk exposures and equity, with 150% weights for sovereign and corporate exposures and 100% for diversified private equity and exchange-traded equity.

Explore exposure value (EAD) calculation across term loans and revolving assets. Learn how CCF, current drawdown, and undrawn commitments determine EAD for letters of credit, bonds, repos, and equities.

Explain how banks calculate crm adjusted rwa under Basel II–IV using on-balance sheet netting, collateral, and guarantees, with ead, guaranteed amounts, and risk weights.

Explore the internal rating based IRB approach to credit risk, including foundation and advanced variants, using internal estimates of default probability, loss given default, and exposure at default.

Identify IRB asset classes—sovereigns, banks, corporates, corporate SMEs under €50 million, retail, and equity exposures—and explain how PD, EAD, LGD, and maturity shape RWA.

Learn how to derive loss given default and maturity under Basel II IRBF, applying LGD by seniority, collateral mitigation, and explicit or implicit maturity with floor and cap rules.

Explain how Basel II IRBF computes risk weight and risk weighted assets by deriving correlation, maturity adjustment, and capital requirement, then applying scaling to obtain RWA.

Derive Basel II IRBA asset classes by assessing exposure type, turnover, and product. Classify exposures into sovereigns, banks, corporate SMEs, residential mortgages, other retail, and revolving; equities are not RWA.

Map asset class and internal rating to the Basel II IRBA PD table to derive the probability of default, then apply it to calculate risk weights and RWA for wholesale and retail exposures.

Learn how to calculate residual term to maturity in Basel II IRBA, including end date, data effective date, defaults, and overrides, and how longer maturities increase risk weights.

Calculate risk weights and risk weighted assets for wholesale exposures under the advanced IRBA, including SME firm size adjustments, correlation, maturity, K, and the 1.06 scaling factor.

Learn Basel II IRBA risk weight calculations for retail exposures, including residential mortgage exposures, qualifying revolving retail exposures, other retail exposures, using PD, LGD, R, and K to derive RWA.

Calculate expected loss under Basel II IRBA using PD, LGD, and EAD. A €100,000 exposure with PD 0.02 and LGD 0.5 yields €1,000; next video covers exposures in default.

Explore how on-balance sheets netting, collateral, and guarantees affect EAD in Basel II IRBA; netting reduces EAD, while collateral and guarantees do not affect RWA or CRM-adjusted RWA.

Compare Basel II operational risk methods: basic indicator approach, standardized approach with eight business lines and beta factors, and advanced measurement approach using internal risk models.

Explore Basel II market risk, define market risk, and outline the two main types—CIU market risk and equity market risk—and how to calculate market risk capital requirements.