Quantifying the effects of the new counterparty risk method delivers findings for future business planning
DZ BANK, one of the biggest banks in Germany and a central bank for about 850 co-operative banks, decided to use a BearingPoint calculation engine for the new standard approach in counterparty risk (SA-CCR) within an impact analysis. The implemented calculation engine identifies exposures for all asset classes that are affected by the new method. As a result of the flexible input interface various data warehouses can be used.
Henceforth, the new standard approach in counterparty risk will replace well-known methods like the “current exposure method” (CEM) and the “standardized method” (SM). It is expected that the method has to be implemented by the end of 2018 to be able to be compliant with capital adequacy requirements. This is going to be relevant for all institutions having derivatives in their banking or trading book and not using the internal model. As a result, there is a necessity for banks to largely adapt their current data storage, their calculation method for capital requirements as well as the large exposure reporting (GroMiKV).
The complex approach with respect to the potential future exposure (PFE) results in methodological challenges in the SA-CCR. Furthermore, additional requirements for banks’ data storages arise in order to provide the essential parameters for the calculation. The application of the BearingPoint calculation engine solves the methodological problem. It helps banks to analyze the required additional data and its source systems with respect to the present derivatives portfolio.
DZ BANK, using the ABACUS/DaVinci software for the supervisory reporting, decided to realize the SA-CCR test calculation utilizing the ABACUS/DaVinci-database as a comprehensive data storage for their own portfolio. Bringing in the exposures that have been identified within the SA-CCR calculation engine in the ABACUS/DaVinci database made it possible to simulate the RWA and CVA-values and to compare them on an equal basis with the productive results of the market valuation method. For the DZ BANK this procedure established a foundation for the future capital planning and enabled the use of reliable results in the course of the Basel III Monitoring Reporting.
Maik Frey, Partner at BearingPoint, explained: “Thanks to the very close collaboration of our project team with the involved employees of DZ BANK, the implementation of the SA-CCR calculation engine as well as the performance of the calculations has been a smooth process, in spite of the high complexity of the product portfolio.“
The BearingPoint SA-CCR calculation engine that has been installed at the DZ BANK represents a preliminary stage for the standard module. This module is being offered to the institutions as a part of the new Abacus360 platform. Abacus360 is an innovative, sustainable solution developed by BearingPoint as an answer to the future challenges of bank regulation. With its integrated and modular design, Abacus360 makes it possible to combine its single components that are adapted to the special needs of the institutions individually. The main features of Abacus360 are performance, scalability plus a significantly higher transparence as well as a superior integration in banking processes. A consistent data model that ensures a long-term maintainability under a constant changing environment represents the centerpiece of the platform.