Skip to Main content Skip to Navigation
Theses

Understanding some new Basel III implementation issues for Lebanese Commercial Banks

Abstract : This thesis aims at providing Bank Audi with an updated tool to understand and investigate in given risk types encountered in their portfolios and the way Basel suggests computing their capital charges. International regulator is constantly changing and modifying previously used approaches to enhance the reflection of the market and banking sector risks. The recent financial crisis played a major role in these reforms, in addition the situation of Bank Audi and the markets it is operating in, represent certain specifications that should be accounted for. The work handles interest rate risk in the trading book, Counterparty Credit Risk faced with derivatives along a closer look on the Credit Valuation Adjustment topic and the incorporation of Wrong Way Risk. The first part discusses the new Fundamental Review of the Trading Book: focusing on the general interest rate risk factor, the paper compared Basel’s Sensitivity Based Approach (SBA) capital charge to more traditional approaches of VaR using several models such as Generalized Auto Regressive Conditional Heteroscedasticity (GARCH), Principal Components Analysis (PCA), Independent Components Analysis (ICA) and Dynamic Nelson Siegel. Application on portfolios with zero coupon bonds of different sovereigns revealed the divergence in results between stable markets (such as France and Germany), less stable (such as the USA) and emergent markets (such as Turkey). The second part is dedicated to the Counterparty Credit Risk. A new capital charge methodology was proposed by Basel and set as a standard rule in 2014: the Standardized Approach for Counterparty Credit Risk (SA-CCR). Applying this approach on different derivatives portfolios, we compared it to internal models. The internal methodologies incorporated historical estimations and future projections based on Vasicek and GARCH models. Different hedging cases were investigated on EUR and USD portfolios. The impact of each hedging technique and the difference between IMM and the standardized methods were highlighted in this work: without hedging, the internal approach amends 80% of the standardized capital whereas, in general, the hedging is encouraged more under the standardized approach relatively to its capital reduction under the internal model. The third part remains a part of the Counterparty Credit Risk however, the main focus in this work is the Credit Valuation Adjustment. This topic was neglected in terms of capital charge earlier but due to its important impact is now incorporated as a capital charge amended when no central clearing is put in place when dealing with derivatives. We focus on the regulatory approaches of capital computation, comparing both accepted approaches based on portfolios of interest rate swaps held with investment grade sovereigns. An incorporation of the Wrong Way Risk is another addition in this work: using Error Correction Models we were able to reflect the impact of the correlation between the exposure and the credit quality of the investment grade sovereign we are dealing with. Based on such results, a suggestion of a re-calibrated standardized approach is in place to encourage the use of the CDS as an indicator of the credit quality of the counterparty and not its grade (investment or not) as followed by the new Basel regulations
Document type :
Theses
Complete list of metadatas

Cited literature [174 references]  Display  Hide  Download

https://tel.archives-ouvertes.fr/tel-01684871
Contributor : Abes Star :  Contact
Submitted on : Monday, January 15, 2018 - 7:26:08 PM
Last modification on : Saturday, December 7, 2019 - 3:49:50 AM
Long-term archiving on: : Sunday, May 6, 2018 - 7:10:34 AM

File

TH2017SAYAHMABELLE.pdf
Version validated by the jury (STAR)

Identifiers

  • HAL Id : tel-01684871, version 1

Collections

Citation

Mabelle Sayah. Understanding some new Basel III implementation issues for Lebanese Commercial Banks. Business administration. Université de Lyon, 2017. English. ⟨NNT : 2017LYSE1150⟩. ⟨tel-01684871⟩

Share

Metrics

Record views

563

Files downloads

2338