module_8 - Module 8 Learning Goals: Understand the...

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Module 8
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± Learning Goals: Understand the importance of solvency, from the point of view of the internal management of entities, regulation and supervision. o know how calculation of the solvency ratio has evolved, and the To know how calculation of the solvency ratio has evolved, and the effects of risk management. To know how Deposit Guarantee Funds work, and about the reserve quirements requirements. ± Context: You belong to the Bank of Spain supervisory team that oversees financial institution A. You must be able to carry out the appropriate calculation to determine the level of compliance with solvency (Basel I) and liquidity requirements set out by the regulatory body. You should be able to make recommendations to solve the problems found in your analysis. 2
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± verview Oe e Introduction. Banking risks Solvency ratio. • Basel I • Basel II • Introduction to Basel III Limits to the concentration of risk. Insolvency risk and country risk. eposit Guarantee Funds Deposit Guarantee Funds. Legal reserve requirement ± ontinuous assessment: Continuous assessment: Work on problem solving for calculation of reserve requirements and Basel I solvency ratio. 3
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Introduction. anking risks Banking risks
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anking risks Banking risks ± anking risks can be classified into: Banking risks can be classified into: Organisational risks: Strategic, technological, ompetition, regulatory, fraud, operational……. competition, regulatory, fraud, operational……. Typical banking risks: redit risk: breach of the debtor's obligations Credit risk: breach of the debtor s obligations. • Liquidity risk: credit requests or deposit withdrawals by customers. • Interest rate risk: the result of interest rate volatility and of the differences between average maturity of nancing for active and passive operations financing for active and passive operations • Exchange rate risk: owing to exchange rate uctuations. fluctuations. • Market risk: derives from price volatility of instruments that make up the trading portfolio. 5
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Solvency ratio.
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asel I Basel I ± The Basel Capital Accord (1988) establishes that banking entities must at all times maintain a solvency above 8 %. ± The solvency ratio is defined as the ratio of equity to the sum of asset balance sheet items, plus some off-balance sheet elements, weighted sing an approximate measure of their level of risk. The level of using an approximate measure of their level of risk. The level of
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This note was uploaded on 02/03/2011 for the course ECON 101 taught by Professor Flora during the Spring '11 term at Universidad Carlos III de Madrid.

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module_8 - Module 8 Learning Goals: Understand the...

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