On Monday, September 26, 2005, the New York City PRMIA Chapter held its fall kick-off meeting entitled “Basel II and Its Impact on Risk Management and Strategy.” The speakers included:

Tanya Azarchs, Managing Director, Financial Services, Standard & Poor’s
Brian Boyle, Manager, Financial Services Advisory Practice, Ernst & Young
Michel Crouhy, Ph.D. Research & Development, Director IXIS Corporate and Investment Bank

These talks were intended to be pretty general in nature and to give a perspective from the 25,000 foot level. Future sessions will go into various sub-topics in much greater detail.

The following are some notes from the presentations:

Data Integrity Issues - probably the biggest hard dollar cost of Basel II
Materiality Thresholds need to be adopted

Capital Calibration: need to have longer time frame than one year or the term of the loan; need to account for loan roll-over probability. Probably should use 3 year credit cycle for determining PD (probability of default), LGD and EAD.

Disintermediation will continue as investment grade credits are still penalized under Basel II like they were in Basel I. Basel II accord is really capital accord for a BBB- world.

Banks are moving from “originate and hold” to “underwrite and distribute” model of operations. Loans that they do hold tend to be lower in credit quality… Concentrated Credit Risk

Credit Portfolio Management – no longer a binary decision of to loan money or not. Basel II does not capture portfolio effects either benefits of diversification or risks of concentration.

July 2005 Market Risk redefinition – more details available at www.bis.org website

Double Default problem and discussion about Investment Bank capital guidelines