Basel III and Stress Testing

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This Basel III and Stress Testing course provides participants with an overview of Basel III, why it was introduced and the evolution of the requirements from Basel I.

It explains why it is necessary and how it is being implemented by regulators. The course also looks at the various elements of IMF stress testing and the different approaches that can be adopted.


This course is for individuals with a basic understanding of banking and the financial markets.

Learning Outcomes

At the end of this course participants should understand:

  • How banking risk is measured and regulated
  • The implications of Basel III and the current regulatory landscape
  • The importance and process of stress testing

Course Content

The importance of banking regulation

  • Consequences of the financial crisis
  • Bank balance sheet structure
  • The ‘shock absorber’ and regulatory capital

Measuring risk

  • Banking book VS trading book
  • Counterparty credit risk, Var and expected shortfall
  • Current regulatory landscape

Overview of Basel I

  • The risk asset ratio and gearing ratio

Overview of Basel II

  • The three pillars
  • The leverage ratio and ‘cost of balance sheet’

Overview of Basel III

  • Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
  • High Quality Liquid Assets (HQLA)

Exercises: Calculating regulatory capital

IMF Stress Testing

  • Accounting-based VS market price VS macro-financial approach
  • Aggregate exposures, systematic factors and endogenous risk
  • Statistical VS structural macro models and pre-crisis stress test weaknesses

Exercises: Group discussions on stress test scenarios

Comprehensive Capital Analysis and Review (CCAR)

  • BIS recommendations and CCAR scenarios


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