Professional Documents
Culture Documents
17 February 2023
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Disclaimer
This presentation is intended for educational purposes only and does not replace
independent professional judgement. Statements of fact and opinions expressed
are those of the presenter individually and, unless expressly stated to the
contrary, are not the opinion or position of my current or previous employers, the
Actuarial Society of Zimbabwe, its cosponsors, or its committees. The presenters
opinions are based upon information considered reliable. Distribution of the
presentation without written permission of the presenter is prohibited.
Contents
1. What are banks?
2. Bank regulation
4. Modelling.
6. Discussion
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What is a Bank?
A bank is an institution whose current operations consist in granting loans and receiving deposits from
the public [Freixas and Rochet(2008)].
o Processing information and monitoring borrowers (gives rise to informational asymmetries); and
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Structure of Banks
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Major Players in the Global Financial Reforms in the aftermath of the 2008 GFC
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Need for Regulation in Banking
Financial Regulators responsible for, among others, fostering financial stability.
Post Global Financial Crisis (GFC) regulatory reforms, more focused on systemic stability and
macroprudential regulation.
Minimising the impact of contagion and reducing systemic risk in the banking system.
The major assumption being: greater capital, among other things, reduces system-wide fragility.
Reduces Moral Hazard as banks also provide a chunk of equity for every loan created.
Minimum capital requirements a combination of a dollar based floor and risk based measures.
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From Basel I to III
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Basel III Framework
Basel III
Countercyclical Buffer
+ Consultations for
Margin OTC Revisions June 2018
Derivatives
G-SIBs & D-SIBs Buffer
Principle 2
Principle 3 Regulatory
Supervisory Review Process (SREP) Authorities
Supervisors to expect banks to operate
above regulatory minimum capital ratios
Principle 4
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Internal Capital Adequacy Assessment Process (ICAAP)
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Regulatory versus Economic Capital
Buffer Buffer
Supplementary
Capital Credit Credit
Risk Risk
Tier 2 Capital Tier B Capital
Supplementary
Capital
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Insurance vs Banking Banking Overview
Insurance Banking
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Quant vs Actuary Banking Overview
Actuary Quant
Insurance Banking
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Key Technical Actuarial Skillsets for enhancing banking sector
performance
Communication
Emotional Intelligence
Critical Thinking
Model Life Cycle
Review
Review
Validation
Validation Request
Request
Validation
Validation
Model
Review
Request
Implementation
Implementation
Validation
Validation
Model
Implementation
Requirements
Data
Policies
Collection
Methodological
Testing
Choices
Computing
Engine
Design
Design
Validation
Validation
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Risk Analytics
Risk measurement techniques
Credit Risk:
• Naïve Bayesian
• Survival Analysis
Capital Requirement Assessment
• Cox Proportional Hazards
• Kaplan-Meier Curves
• Black-Scholes Model
• Other model types: Vintage Analysis (especially for CECL)
Regression and Neural Networks
Market Risk
• Expected Short-Fall (Conditional VAR)
Operational Risk
• Loss Distribution Approach (LDA)
• Fast Fourier Transforms (FFT)
• Extreme Value Theory
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Asset Liability Management
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Machine Learning in Banking and Finance
Machine learning in banking and finance is now considered a key aspect of financial several services and applications.
Machine learning is a subset of data science that provides computers the ability to learn and improve from experience without being explicitly
programmed.
Machine Learning Algorithms can be broadly classified into three types i.e. supervised learning algorithms, unsupervised learning algorithms and
reinforcement learning algorithm as shown below
However, one of the significant challenges that the industry face in the implementation of machine learning algorithms is the absence of good
quality data.
Machine Learning use cases in the banking sector
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Enterprise wide Risk Management (ERM)
Strategic
Business
Solvency
Credit
Concentration
Liquidity
Operational
IRR
Price Risk
FX
Compliance
Legal
IT
Cybersecurity
Financial Crime
Regulatory
Reputational Risk
Macro-Economic
Conduct Risk
AML/CFT
Stakeholder
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Actuaries in Banking Industry Challenges
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References
1. Quantitative Research, Michael Page City Publication: Matthew Jones, Tom Mardon, Andrew Cook
3. Howard Davies (2010). Global Financial Regulation after the Credit Crisis. London School of Economics and Political Science.
https://onlinelibrary.wiley.com/doi/full/10.1111/j.1758-5899.2010.00025.x
4. RBZ (2011). Guideline No: 1-2011/BSD Technical Guidance on the Implementation of the Revised Capital Adequacy Framework in Zimbabwe. BANK LICENSING,
SUPERVISION & SURVEILLANCE. https://www.rbz.co.zw/documents/BLSS/guide_circ_not/technical-guidance-on-basel-ii.pdf.
6. Cannata. F (2011). Basel III and Beyond: A Guide to Banking Regulation after the Crisis, Risk Books. 2011.
7. Martin Neisen and Stefan Roth (2017) Basel IV: The Next Generation of Risk Weighted Assets.
8. Cooley.T.F (2011): Regulating Wall ST. The Dodd-Frank Act and the New Architecture of Global Finance. NYU STERN.
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Thank you
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