Total capital

≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2 Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

broken down by currency

Credit
Risk Operational
External Rating Risk
Standardized
Claim
Basic Indicator Approach (BIA)
Type
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM ∑ (GIi × α )
i =last three years
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM K Operational ,BIA =
ee Elements (IRB) 3
isk Components Internal Estimate
isk-weight functions
Minimum requirements Foundation IRB Standardized Approach (SA) ASA
  Retail ◄ Volume
 ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume
K SA =  i =last three years 
Corporate, Sovereign 3
& Bank Exposures
Advanced Measurement
• Capital for UL only
• EL with provisions PD EAD LGD M Approach (AMA)
Elements Elements
RWA=12.5 × EAD × K Must Should Have
K = LGD × PD × f(M) Have Internal External Scenario Controls
Data Data Analysis & Tools
Different IRB Treatment
Retail
Advanced IRB Internal Measurement Approach (IMA) Mitigation
Equities γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j )
1. Residential Mortgage Supervisor Supplied
2. Qualifying Revolving Loss Distribution Scorecard Correlations
Purchased
3. Small Bus Loans Receivables Approach (LDA) Approach

Market
Scope Risk
Mitigation (CRM) Securitization
Trading Book
Fixed-Income
Standardized Equities Banking Book
Simple True-sale conditions:
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities
4. SPE holder rights
Comprehensive External Rating
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks)
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
IRB Approach
Foundation Derivatives Internal Models Approach (IMA)
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing
Subord: 75% LGD
LGD
Collateral Supervisory
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions
LGD • 99% confidence
Approach (IAA)
• One year of data k+
Yellow: 5-9 0.4 -
• Quarterly updating Red: 10+ 1.0
 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% ((AAA)) × 8% capital = $1.6 MM 3
$100 MM loan × 100% ((BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk Third
Mitigation (CRM) Securitization Pillar
Trading Book Qualitative disclosures Quantitative disclosures
Fixed-Income Tier 1 with breakdowns,
Capital structure
Standardized Equities Banking Book
Tier 2 & 3, deductions, total eligible

Simple True-sale conditions: Capital adequacy Credit risk, equity in IRB, market
Substitute 1. risk to 3rd party Currencies Currencies risk, operational risk, Total & Tier 1
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities Risk exposure and assessment
4. SPE holder rights
Comprehensive External Rating
General qualitative disclosure
• strategies & processes
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) • organization of risk mgmt function
• scope & nature of risk reporting & measurement
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
• Policies for, and monitoring of, hedging & mitigation
Credit risk
IRB Approach definitions of past due, impaired;
allowance approaches, policies

Foundation Derivatives Internal Models Approach (IMA) Additional requirement under IRB approaches
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Market risk capital requirements for: interest rate
Subord: 75% LGD
LGD risk, equity position, FX and commodity
Collateral Supervisory
Backtesting Operational Risk
VaR
Formula (SF) description of approaches;
 E* 
LGD 



Advanced • 10 day horizon if AMA, factor and insurance
E  Internal Assessment • 99% confidence Green: <5 exceptions Banking book equities investment values, public/private,
LGD
Approach (IAA) gain/loss from sale, req by group
• One year of data k+
Yellow: 5-9 0.4 - Banking interest rate
• Quarterly updating Red: 10+ 1.0 value change for rate shock,
broken down by currency
 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

broken down by currency

Credit
Risk Operational
External Rating Risk
Standardized
Claim
Basic Indicator Approach (BIA)
Type
$100 MM loan × 20% ((AAA)) × 8% capital = $1.6 MM ∑ (GIi × α )
i =last three years
$100 MM loan × 100% ((BB-) × 8% capital = $8.0 MM K Operational ,BIA =
Three Elements (IRB) 3
1. Risk Components Internal Estimate
2. Risk-weight functions
3. Minimum requirements Foundation IRB Standardized Approach (SA) ASA
  Retail ◄ Volume
 ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume
K SA =  i =last three years 
Corporate, Sovereign 3
& Bank Exposures
Advanced Measurement
• Capital for UL only
• EL with provisions PD EAD LGD M Approach (AMA)
Elements Elements
RWA=12.5 × EAD × K Must Should Have
K = LGD × PD × f(M) Have Internal External Scenario Controls
Data Data Analysis & Tools
Different IRB Treatment
Retail
Advanced IRB Internal Measurement Approach (IMA) Mitigation
Equities γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j )
1. Residential Mortgage Supervisor Supplied
2. Qualifying Revolving Loss Distribution Scorecard Correlations
Purchased
3. Small Bus Loans Receivables Approach (LDA) Approach

Market
Scope Risk
Mitigation (CRM) Securitization
Trading Book
Fixed-Income
Standardized Equities Banking Book
Simple True-sale conditions:
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities
4. SPE holder rights
Comprehensive External Rating
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks)
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
IRB Approach
Foundation Derivatives Internal Models Approach (IMA)
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing
Subord: 75% LGD
LGD
Collateral Supervisory
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions
LGD • 99% confidence
Approach (IAA)
• One year of data k+
Yellow: 5-9 0.4 -
• Quarterly updating Red: 10+ 1.0
 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

broken down by currency

Credit
Risk Operational
External Rating Risk
Standardized
Claim
Basic Indicator Approach (BIA)
Type
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM ∑ (GIi × α )
i =last three years
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM K Operational ,BIA =
ee Elements (IRB) 3
isk Components Internal Estimate
isk-weight functions
Minimum requirements Foundation IRB Standardized Approach (SA) ASA
  Retail ◄ Volume
 ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume
K SA =  i =last three years 
Corporate, Sovereign 3
& Bank Exposures
Advanced Measurement
• Capital for UL only
• EL with provisions PD EAD LGD M Approach (AMA)
Elements Elements
RWA=12.5 × EAD × K Must Should Have
K = LGD × PD × f(M) Have Internal External Scenario Controls
Data Data Analysis & Tools
Different IRB Treatment
Retail
Advanced IRB Internal Measurement Approach (IMA) Mitigation
Equities γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j )
1. Residential Mortgage Supervisor Supplied
2. Qualifying Revolving Loss Distribution Scorecard Correlations
Purchased
3. Small Bus Loans Receivables Approach (LDA) Approach

Market
Scope Risk
Mitigation (CRM) Securitization
Trading Book
Fixed-Income
Standardized Equities Banking Book
Simple True-sale conditions:
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities
4. SPE holder rights
Comprehensive External Rating
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks)
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
IRB Approach
Foundation Derivatives Internal Models Approach (IMA)
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing
Subord: 75% LGD
LGD
Collateral Supervisory
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions
LGD • 99% confidence
Approach (IAA)
• One year of data k+
Yellow: 5-9 0.4 -
• Quarterly updating Red: 10+ 1.0
 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

broken down by currency

Credit
Risk Operational
External Rating Risk
Standardized
Claim
Basic Indicator Approach (BIA)
Type
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM ∑ (GIi × α )
i =last three years
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM K Operational ,BIA =
ee Elements (IRB) 3
isk Components Internal Estimate
isk-weight functions
Minimum requirements Foundation IRB Standardized Approach (SA) ASA
  Retail ◄ Volume
 ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume
K SA =  i =last three years 
Corporate, Sovereign 3
& Bank Exposures
Advanced Measurement
• Capital for UL only
• EL with provisions PD EAD LGD M Approach (AMA)
Elements Elements
RWA=12.5 × EAD × K Must Should Have
K = LGD × PD × f(M) Have Internal External Scenario Controls
Data Data Analysis & Tools
Different IRB Treatment
Retail
Advanced IRB Internal Measurement Approach (IMA) Mitigation
Equities γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j )
1. Residential Mortgage Supervisor Supplied
2. Qualifying Revolving Loss Distribution Scorecard Correlations
Purchased
3. Small Bus Loans Receivables Approach (LDA) Approach

Market
Scope Risk
Mitigation (CRM) Securitization
Trading Book
Fixed-Income
Standardized Equities Banking Book
Simple True-sale conditions:
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities
4. SPE holder rights
Comprehensive External Rating
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks)
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
IRB Approach
Foundation Derivatives Internal Models Approach (IMA)
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing
Subord: 75% LGD
LGD
Collateral Supervisory
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions
LGD • 99% confidence
Approach (IAA)
• One year of data k+
Yellow: 5-9 0.4 -
• Quarterly updating Red: 10+ 1.0
 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

broken down by currency

Credit
Risk Operational
External Rating Risk
Standardized
Claim
Basic Indicator Approach (BIA)
Type
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM ∑ (GIi × α )
i =last three years
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM K Operational ,BIA =
ee Elements (IRB) 3
isk Components Internal Estimate
isk-weight functions
Minimum requirements Foundation IRB Standardized Approach (SA) ASA
  Retail ◄ Volume
 ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume
K SA =  i =last three years 
Corporate, Sovereign 3
& Bank Exposures
Advanced Measurement
• Capital for UL only
• EL with provisions PD EAD LGD M Approach (AMA)
Elements Elements
RWA=12.5 × EAD × K Must Should Have
K = LGD × PD × f(M) Have Internal External Scenario Controls
Data Data Analysis & Tools
Different IRB Treatment
Retail
Advanced IRB Internal Measurement Approach (IMA) Mitigation
Equities γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j )
1. Residential Mortgage Supervisor Supplied
2. Qualifying Revolving Loss Distribution Scorecard Correlations
Purchased
3. Small Bus Loans Receivables Approach (LDA) Approach

Market
Scope Risk
Mitigation (CRM) Securitization
Trading Book
Fixed-Income
Standardized Equities Banking Book
Simple True-sale conditions:
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities
4. SPE holder rights
Comprehensive External Rating
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks)
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
IRB Approach
Foundation Derivatives Internal Models Approach (IMA)
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing
Subord: 75% LGD
LGD
Collateral Supervisory
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions
LGD • 99% confidence
Approach (IAA)
• One year of data k+
Yellow: 5-9 0.4 -
• Quarterly updating Red: 10+ 1.0
 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

 Total capital
≥ 8%
RWA Credit + [MRCMarket × 12.5]+[ORCOpr'l × 12.5]
• Undisclosed reserves
• Asset revaluation reserves Tier 2
Credit Risk
• General provisions or
“Supplementary”
loan loss reserves
(only here in Tier 2) Operational Risk
• Hybrid debt capital instruments
(Cumulative preferred stock) Market Risk
• Subordinated term debt
Tier 3
• To meet market risk capital
Tier 1 • Equity capital: issued & requirements only
“Core” fully paid common stock
• Non-cumulative, non-redeemable • Short-term subordinated debt
preferred stock • Maturity at least 2 years
• Disclosed reserves • With covenant limiting payment
• (Excludes Goodwill) if impairs bank’s capital requirement

Credit Operational
Second
Risk Risk
Pillar
External Rating
Standardized Basic Indicator Approach (BIA)
Claim ∑ (GIi × α ) Key principles of supervisory review
Type i =last three years
K Operational ,BIA = 1. Rigorous bank process 2. Supervisor review
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM 3
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM • Board, Sr mgmt oversight • Good targets, processes
Three Elements (IRB) • Capital assessment • Captial adequacy
Standardized Approach (SA)
1. Risk Components Internal Estimate ASA • Total risk assessment • Control envirnonment
2. Risk-weight functions   Retail ◄ Volume
3. Minimum requirements Foundation IRB  ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume • Monitoring & reporting • Min. standard compliance
=  • Internal control review • Response (as needed)
i =last three years
K SA
3

Corporate, Sovereign
Advanced Measurement 3. Supervisor response 4. Supervisor intervention
& Bank Exposures
Approach (AMA)
Specific Issues to be Addressed
• Capital for UL only
• EL with provisions PD EAD LGD M Elements
Must
Elements
Should Have
• Banking book interest rate risk
Have
RWA=12.5 × EAD × K
Internal External Scenario Controls Operational Risk
K = LGD × PD × f(M)
Data Data Analysis & Tools Credit Risk • Gross income as proxy
Internal Measurement Approach (IMA) Mitigation • IRB stress tests
• Definition of default
Different IRB Treatment γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j ) • Trading book eligibility

Retail
Advanced IRB Correlations
•
•
Residual risk
Concentration risk
• Valuation
Equities Loss Distribution Scorecard
• Counterparty risk
• IMA: Stress testing
1. Residential Mortgage Approach (LDA) Approach • IMA: Specific risk model
2. Qualifying Revolving
Supervisor Supplied Market Risk
Purchased
3. Small Bus Loans Receivables Market
Scope Risk
Mitigation (CRM) Securitization Third
Trading Book
Pillar
Fixed-Income
Standardized Qualitative disclosures Quantitative disclosures
Equities Banking Book
Tier 1 with breakdowns,
Simple True-sale conditions: Capital structure Tier 2 & 3, deductions, total eligible
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control Capital adequacy
Collateral Risk Weight 3. securities not obligations Commodities Commodities Credit risk, equity in IRB, market
risk, operational risk, Total & Tier 1
4. SPE holder rights
Comprehensive External Rating Risk exposure and assessment
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks) General qualitative disclosure
E* = (E + H) - (C - H - Hfx) • strategies & processes
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt • organization of risk mgmt function
• scope & nature of risk reporting & measurement
IRB Approach • Policies for, and monitoring of, hedging & mitigation

Foundation Derivatives Internal Models Approach (IMA) Credit risk definitions of past due, impaired;
External allowance approaches, policies
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing Additional requirement under IRB approaches
Subord: 75% LGD
LGD
Collateral Supervisory Market risk capital requirements for: interest rate
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions Operational Risk
risk, equity position, FX and commodity

description of approaches;
LGD • 99% confidence
Approach (IAA) if AMA, factor and insurance
• One year of data k+
Yellow: 5-9 0.4 - Banking book equities investment values, public/private,
• Quarterly updating Red: 10+ 1.0 gain/loss from sale, req by group

Banking interest rate value change for rate shock,

broken down by currency

Credit
Risk Operational
External Rating Risk
Standardized
Claim
Basic Indicator Approach (BIA)
Type
$100 MM loan × 20% (AAA) × 8% capital = $1.6 MM ∑ (GIi × α )
i =last three years
$100 MM loan × 100% (BB-) × 8% capital = $8.0 MM K Operational ,BIA =
ee Elements (IRB) 3
isk Components Internal Estimate
isk-weight functions
Minimum requirements Foundation IRB Standardized Approach (SA) ASA
  Retail ◄ Volume
 ∑ max [∑ (GI lines 1 −8 × β lines 1-8 ),0 ] Comm’l◄ Volume
K SA =  i =last three years 
Corporate, Sovereign 3
& Bank Exposures
Advanced Measurement
• Capital for UL only
• EL with provisions PD EAD LGD M Approach (AMA)
Elements Elements
RWA=12.5 × EAD × K Must Should Have
K = LGD × PD × f(M) Have Internal External Scenario Controls
Data Data Analysis & Tools
Different IRB Treatment
Retail
Advanced IRB Internal Measurement Approach (IMA) Mitigation
Equities γ (i,j) ∗ EI(i , j ) ∗ PE(i , j ) ∗ LGE(i , j )
1. Residential Mortgage Supervisor Supplied
2. Qualifying Revolving Loss Distribution Scorecard Correlations
Purchased
3. Small Bus Loans Receivables Approach (LDA) Approach

Market
Scope Risk
Mitigation (CRM) Securitization
Trading Book
Fixed-Income
Standardized Equities Banking Book
Simple True-sale conditions:
Substitute 1. risk to 3rd party Currencies Currencies
2. seller doesn’t control
Collateral Risk Weight 3. securities not obligations Commodities Commodities
4. SPE holder rights
Comprehensive External Rating
Reduce Exposure by Collateral (+ haircuts)
Tranche Standardized (sum the building blocks)
E* = (E + H) - (C - H - Hfx)
MRCtStandard = ∑ IR,EQ,FX ,CO,OP MRCt
IRB Approach
Foundation Derivatives Internal Models Approach (IMA)
External
Senior: 45% LGD
Foundation Ratings-based (RBA) Qualitative Requirements Stress Testing
Subord: 75% LGD
LGD
Collateral Supervisory
Backtesting
LGD
 E* 


E 


Advanced
Formula (SF)
Internal Assessment
• 10 day horizon VaR Green: <5 exceptions
LGD • 99% confidence
Approach (IAA)
• One year of data k+
Yellow: 5-9 0.4 -
• Quarterly updating Red: 10+ 1.0