Download XBRL and Basel II - XBRL International

Leveraging XBRL
for Basel II
Daniel D’Amico, IBM Business Consulting Services, UK
Agenda
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
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
Basel II background
Basel II is an opportunity
The data management challenge
XBRL and Basel II
A couple of quotes
 “Regulators and customers are demanding greater focus
on risk management. …This call for transparency will
challenge traditional business practices and will require
more auditable processes throughout the business”
Morgan Stanley analyst (on market timing), FT 11/03
 “US regulators expect Basel II will apply to a total of
around 20 large US banks. All US banks operating under
Basel II will be obliged to use only the most advanced
Basel II approaches for assessing banking risks, which
means the IRB approaches in the case of credit risk.”
Global Risk Regulator 10/03
Basel II Background
What is
Basel II Accord?
What is it
trying to
achieve?
The publication of the Basel II Accord will mark the end of long process that will have effectively rewritten the rules of banking. Basel II will affect the conduct of monetary policy and the stability of
financial institutions all over the world
 To promote safety and soundness in the financial system
 To align regulatory capital requirements more closely with underlying risks
 To offer incentives for institutions to pursue more sophisticated & effective risk management
New
Accord
CP 3
Full force
Parallel run
Basel I + II
Integrate into
National law
When does it
happen?
QIS 3
Oct 02
Commercial
imperative
Evaluation
QIS 3
Dec 02
Consultation
phase
May 03
Preparation
New Accord
July 03
EU directive
Nov 03
Jan 06
Dec 06
 Basel II will significantly impact FS institutions and the change is such that preparation needs to
begin now to ensure readiness for a parallel run starting 1st Jan 2006
 Key strategic decisions need to be taken now on the approach to be taken and the benefit that
should be achieved over and above compliance
Basel II is an Opportunity – not just a
Mandate
Basel II Opportunities:
Basel II
Pillar 1:
Minimum
Capital
requirements
Calculation and
Management of:
 Credit Risk
 Operational Risk
 Market Risk
Pillar 2:
Supervisory
Review
Process
 Ensure sound
processes
 Ensure adequate
capital at all times
 Ensure motivation
improving risk
management
practices
Data Foundation
Pillar 3:
Market
Discipline
 Quantitative
and qualitative
disclosure of
undertaken risks
and risk
methodologies
•
•
•
•
•
•
Improve shareholder value
Economic capital savings
Improve/maintain credit rating
Improve risk management strategy
Alignment of Risk & Finance
Cost reduction through organizational
process improvement
• Identify potentially dangerous
portfolio positions and other risk
sources
Basel II Challenges:
•
•
•
•
Setting up Basel II program
Data management
Systems management
Establishing Risk Framework
Key challenges – Systems & Data Management
10 Common signs of
unstable data foundation
Data Management is the key challenge in
meeting Basel II
Source: IBM Institute for Business Value analysis, Banks and Basel II: How
Prepared Are They?, October 2002
interviews with 32 Financial institutions worldwide
1.
Inability to gather data for new reporting
requirements.
2. Difficulty complying with regulatory
requirements like Basel II Accord
3. Senior management questions quality,
timeliness, reliability of information used to
make multi-million dollar decisions
4. Inability to consolidate data from multiple
diverse sources
5. Senior Management requests for information
require intensive manual effort to respond, and
far longer than desired.
6. Difficulty in building a single architecture to
address both data consolidation and data
aggregation requirements.
7. Multiple databases or spreadsheets storing
similar data; no common data “dictionary”
across the enterprise
8. No ownership of data
9. There’s no single enterprise view of data
10. Difficulty answering questions about the origins
and business processes performed against
data
A complex International banking group
• Capital allocation
• Capital Calculation
• Risk Strategy
• External Reporting
Group
Private Banking and
Asset Management
Wholesale Banking
Discretionary
Portfolio
Management
Fixed Income,
Equity and
derivatives
Corporate
Personal Finance
UK retail
North
America
Singapore
Credit Cards
Asia Pacific
Hong Kong
Japan
Cross Modelling Solution
Common definition of LGD, PD, EAD
Common customer identifier
IBM’s Basel II Architecture
Loss Data
Data
Warehouse
Collaterals
Extraction,
Validation
Customer
Result
Risk Engine
Data
Basel II Market
Risk Engine
Basel II Op.
Risk Engine
Core Banking
Products
Disclosure
Result
Data
Result
Data
Group
Non-Basel II
Result
Risk Engines
Management Data
Data
Rating, PD, LGD,
Internal
Audience
CCF Models
Extraction
External
Audience
Regulatory
Credit
Data source
Basel II Credit
Enterprise
Data store
Transformation
& calculation
Metadata
Warehouse Administration
Data Marts
Reporting
Where does XBRL fit?
1
XBRL
Loss Data
Data
Warehouse
Extraction,
Validation
Customer
Collaterals
Basel II Credit
Result
Risk Engine
Data
Basel II Market
Risk Engine
Basel II Op.
Risk Engine
Core Banking
Products
Disclosure
Data
Result
Data
Group
Non-Basel II
Result
Risk Engines
Management Data
Data
Internal
Audience
CCF Models
3
External
Audience
Result
Rating, PD, LGD,
Extraction
XBRL
Regulatory
Credit
Data source
2
Enterprise
Data store
XBRL
Transformation
& calculation
Metadata
Warehouse Administration
Data Marts
Reporting
XBRL for Basel II analytics
1
XBRL
Loss Data
Data
Warehouse
Collaterals
Extraction,
Validation
Customer
Result
Risk Engine
Data
Basel II Market
Result
Risk Engine
Data
Basel II Op.
Result
Risk Engine
Data
Non-Basel II
Result
Risk Engines
Data
Core Banking
Products
Disclosure
Rating, PD, LGD,
Enterprise
Data store
Transformation
& calculation
Metadata
Warehouse Administration
Aggregate data for analytics
• Multiple Sources
• Different periods
• Different rules
Data Marts
Many Analytics requirements
•
•
•
Group
Management Data
Internal
Audience
CCF Models
Extraction
External
Audience
Regulatory
Credit
Data source
Basel II Credit
Reporting
•
•
•
•
•
•
•
•
Credit Risk Profile
Credit Risk Assessment
Credit Risk Mitigation
Assessment
Operational Risk Assessment
Portfolio Credit Exposure
Security Analysis
Liquidity Risk
Collections Analysis
Involved Party Exposure
Location Exposure
Non Performing Loan
XBRL for Basel II reporting
2
Loss Data
Data
Warehouse
Collaterals
Extraction,
Validation
Customer
Result
Risk Engine
Data
Basel II Market
Result
Risk Engine
Data
Basel II Op.
Result
Risk Engine
Data
Non-Basel II
Result
Risk Engines
Data
Core Banking
Products
Disclosure
Rating, PD, LGD,
Many reporting requirements
•
Enterprise
Data store
Transformation
& calculation
Metadata
Warehouse Administration
Aggregate data for reporting
• Multiple Sources
• Different periods
• Different rules
Group
•
Management Data
Internal
Audience
CCF Models
Extraction
External
Audience
Regulatory
Credit
Data source
Basel II Credit
XBRL
Data Marts
Reporting
•
External
• Disclosures
• Regulatory
Internal
• Group
• Subsidiary
• Management reporting
Integration with other reporting
requirements
• IAS
Common definition using XBRL
Loss Data
Data
Warehouse
Extraction,
Validation
Customer
Collaterals
Result
Risk Engine
Data
Basel II Market
Result
Risk Engine
Data
Core Banking
Products
Basel II Op.
Result
Risk Engine
Data
Non-Basel II
Result
Risk Engines
Data
3
XBRL
Transformation
& calculation
Group
Data Marts
•
•
Management Data
Internal
Audience
CCF Models
Enterprise
Data store
Definition of Internal Basel II
taxonomies:
Disclosure
Rating, PD, LGD,
Extraction
External
Audience
Regulatory
Credit
Data source
Basel II Credit
•
Reporting
Metadata
Warehouse Administration
•
•
Basel II is an opportunity for banks to force its
subsidiaries and business units into following a
common understanding of data, driving common
standards into the organisation . XBRL can be
THE standard
Define an organizational
metadata layer
Traceability back to
transactions
Common repository for
changes and updates to
requirements
Enhance group ability to
consolidate data
Improve data quality
How is XBRL solving some of the data
management issues?
1.
2.
3.
4.
5.
6.
Inability to gather data for new reporting
requirements.
Difficulty complying with regulatory requirements
like Basel II Accord
Senior management questions quality,
timeliness, reliability of information used to make
multi-million dollar decisions
Inability to consolidate data from multiple
diverse sources
Senior Management requests for information
require intensive manual effort to respond, and
far longer than desired.
Difficulty in building a single architecture to
address both data consolidation and data
aggregation requirements.
Multiple databases or spreadsheets storing
similar data; no common data “dictionary”
across the enterprise
8. No ownership of data
9. There’s no single enterprise view of data
10. Difficulty answering questions about the origins
and business processes performed against data
XBRL for Basel II Analytics
XBRL for Basel II reporting
7.
Common definitions using XBRL
Leveraging XBRL
for Basel II
Daniel D’Amico, London UK
IBM BSC, Financial Services Sector,
Risk and Compliance
[email protected]