DAY 1

   Overview

• Context of the financial crisis
• Asset bubbles and history
• What went wrong?
• Overview of Basel 2 and the Basel 3 changes
• The three pillars
• Risk and governance

EXERCISE – BANK Y

The main banking risks and their management

• A typical balance sheet
• Main banking activities – how banks make money
• Credit risk
• Operational risk
• Interest rate risk
• Liquidity risk
• Business and strategic risk
• Political risk
• Market risk

CASE STUDY: BARCLAYS BANK

 Finance basics

• Fixed income analysis (DCF etc)
• Swaps
•  FX
• Futures and options
• Credit derivatives
• A bit of accounting
• On and off balance sheet positions

EXERCISES: FINANCE THEORY

DAY 2 

Fundamentals of quantitative analysis

• The notion of risk
• Probability distributions
• Correlation and causality
• Modelling
• Value At Risk
• Analysis of the loss curve
• Approaches to constructing loss curves
• Data collection and statistical models
• Back testing
• Risk appetite and economic capital
• The meaning and importance of stress testing

 EXERCISE: PROBABILITY

 Credit Risk

• Overview of credit risk and credit risk management
• Retail unsecured lending – credit scoring
• Mortgage lending
• Corporate lending
• Public credit ratings – use and limitations
• Collateral and guarantees
• Counterparty credit risk and settlement risk
• Credit derivatives and securitization
•  BIS document - principles for management of credit risk
• Credit risk management – roles and responsibilities
•  Auditing credit risk management

 EXERCISE FIXED RATE MORTGAGE

STANDARDISED APPROACH CALCULATION EXAMPLE

 Operational risk management I

• Types of operational risk
• Operational risk management responsibilities
• Basel 2 requirements
•  Qualitative requirements for TSA
• Sound practices for the management of operational risk
• The role of the operational risk department
• Operational risk policy
• Operational risk reporting
• The audit of operational risk management

CASE STUDY  BP

 Liquidity risk

• What is liquidity risk
• Bank runs – Northern Rock
•  Should banks provide capital under Pillar 2?
• Cash flow forecasting
• Scenario analysis and stress testing
• Mitigation – liquidity, committed facilities
• The new Basel 3 rules on liquidity
• Internal audit of liquidity risk management

CASE STUDY: NORTHERN ROCK

 EXERCISE: LIQUIDITY

 Structural interest rate risk

• Interest rate instruments – bonds, swaps
• Banking book and trading book
• Fundamentals of interest rate analysis – pricing, duration, convexity
• The spot curve and the yield curve
• Gap analysis and risk assessment
• Parallel shifts and twists
• A simple Monte Carlo model
• The Basel stress test – 2% parallel shift
•  Interest rate risk management – the ALCO
• The Basel  “Principles” paper
• Capital assessment under Pillar 2
• The audit of interest rate risk management

CASE STUDY:  US SAVINGS AND LOANS CRISIS

EXERCISE: - INTEREST RATE RISK

DAY 3 

Market Risk

• Types of instruments – swaps, options, forwards, futures
• Types of market – OTC, “pit”, electronic
• Margined transactions
• Trading and hedging
• Fundamentals of market risk
• Derivatives, greeks and Black Scholes
• Market risk capital and VAR models
• Simple models
• Sophisticated models
• Difference between pricing models and risk management models
• Middle office and market risk governance
• Scenario analysis and stress testing
• Auditing market risk management
• QUIZ

DAY 4 

Capital Assessment Process

• Pillar 2 
•  Basel 2 principles for capital assessment
• Other guidance
• ICAAP
• Supervisory assessment of capital
• Stress testing and reverse stress testing

  Corporate governance, internal audit and risk management

• Corporate governance principles
• BCBS guidance on governance
• The Combined Code
•  Role of the board and non-execs
• Independent non-execs
• Risk management function and independence
•  Role of internal audit

DISCUSSION ON ROLES OF RISK MANAGEMENT AND INTERNAL AUDIT

  End of course quiz and wash up