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Certified Stress Testing Expert (CSTE)
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Distance Learning and Online Certification Program - Certified Basel ii Professional (CBiiPro)
Distance Learning and Online Certification Program - Certified Pillar 2 Expert (CP2E)
Distance Learning and Online Certification Program - Certified Pillar 3 Expert (CP3E)
Distance Learning and Online Certification Program - Certified Stress Testing Expert (CSTE)
 
Basel ii and Securitization
 
Study the Basel ii text about securitization
The Basel ii Accord and the Securitization Challenges in an
easy to read format

 
Course Title
Basel ii and the new Securitization Framework
 
Objectives:
This course has been designed to provide with the knowledge and skills needed to understand the structured finance industry and the traditional and synthetic securitizations after the Basel ii Accord
 
Target Audience:
This course is intended for senior managers and professionals involved in securitization - from strategy and decision making to capital allocation
 
This course is highly recommended for management consultants.

Duration:
Two days (09:00 - 17:00). It can be tailored to specific needs.
 
Course Synopsis
  • Introduction - what is securitization
  • Structured Finance and Securitization
  • Structured Credit Products and Repackaged Securities
  • Mechanics of Securitization
  • Use of Special Purpose Entities (SPE)
  • Traditional versus Synthetic Securitization
  • Collateralized Debt Obligations
  • Mortgage-Backed Securities
  • Asset-Backed Securities
  • Public Sector Securitizations
  • Corporate Securitizations
  • Arbitrage opportunities
  • Securitization before Basel i
  • The opportunities after the implementation of the Basel i Accord
  • Securitization after Basel ii
  • Scope and definitions of transactions covered under the Securitization framework
  • Capital allocation challenges
  • Securitization in Europe after Basel ii and the Capital Requirements Directive
  • Securitization in the USA
  • Securitization and the Offshore Financial Centers
  • Securitization and the world
  • Challenges and opportunities
  • What is next
The presentation can be customized to meet specific needs.
 

     
 
Stress Testing, Securitization and Highly Leveraged Counterparties
After the Crisis
 
The stress testing programmes should explicitly cover complex and bespoke products such as securitized exposures.
 
According to the Bank of International Settlements, stress tests for securitized assets should consider the underlying assets, their exposure to systematic market factors, relevant contractual arrangements and embedded triggers, and the impact of leverage, particularly as it relates to the subordination level in the issue structure.

Banks have mistakenly assessed the risk of some products (eg CDOs of ABS)
by relying on external credit ratings or historically observed credit spreads related to (seemingly) similar products like corporate bonds with the same external rating. Such approaches can not capture relevant risk characteristics of complex, structured products under severely stressed conditions.

A bank, therefore,
should include in its stress tests all relevant information related to the underlying asset pools, their dependence on market conditions, complicated contractual arrangements as well as effects related to the subordination level of the specific tranches.

The stress testing programme
should cover pipeline and warehousing risks. A bank should include such exposures in its stress tests regardless of their probability of being securitized.

Stress testing is particularly important in the management of warehouse and pipeline risk.

Many of the risks associated with pipeline and warehoused exposures emerge when a bank is unable to access the securitization market due to either bank specific or market stresses.

A bank should therefore include such exposures in its regular stress tests regardless of the probability of the pipeline exposures being securitized.

A bank should enhance its stress testing methodologies to capture the effect of reputational risk. The bank should integrate risks arising from off-balance sheet vehicles and other related entities in its stress testing programme.

To mitigate reputational spill-over effects and maintain market confidence, a bank should develop methodologies to measure the effect of reputational risk on other risk types, with a particular focus on credit, liquidity and market risks. For instance, a bank should include noncontractual off-balance sheet exposures in its stress tests to determine the effect on its credit, liquidity and market risk profiles.

A bank should carefully assess the risks associated with
commitments to off-balance sheet vehicles related to structured credit securities and the possibility that assets will need to be taken on balance sheet for reputational reasons.

Therefore, in its stress testing programme, a bank should include scenarios assessing the size and soundness of such vehicles relative to its own financial, liquidity and regulatory capital positions. This analysis should include structural, solvency, liquidity and other risk issues, including the effects of covenants and triggers.

A bank should enhance its stress testing approaches for
highly leveraged counterparties in considering its vulnerability to specific asset categories or market movements and in assessing potential wrong-way risk related to risk mitigating techniques.

A bank may have large gross exposures to leveraged counterparties including hedge funds, financial guarantors, investment banks and derivatives counterparties that may be particularly exposed to specific asset types and market movements.

Under normal conditions, these exposures are typically completely secured by posted collateral and continuous re-margining agreements yielding zero or very small net exposures.

In case of severe market shocks, however, these exposures may increase abruptly and potential crosscorrelation of the creditworthiness of such counterparties with the risks of assets being

hedged may emerge (ie wrong-way risk).

A bank should enhance its stress testing approaches related to these counterparties in order to capture adequately such correlated
tail risks.
     
 
SPEs, QSPEs, VIEs and Sarbanes Oxley Audits After the Market Crisis
 
According to the Staff Audit Practice Alert No 3 from the Public Company Accounting Oversight Board, auditors of public firms that have to comply with the Sarbanes Oxley Act of 2002 should give specific consideration to the new and elevated risks after the current market crisis, and should adjust their audit procedures.

One of the areas of concern:
Off-balance-sheet arrangements and Special Purpose Entities (again), especially the entities known as Qualifying Special Purpose Entity (QSPEs) and Variable Interest Entities (VIEs).

Qualifying Special Purpose Entity (QSPE)

According to the Statement of Financial Accounting Standards No. 140 from the Financial Accounting Standards Board, a QSPE is a legal vehicle (like a trust) that:

- It is distinct from the transferor

- Performs significantly limited activities (so banks, insurance firms, pension plans and investment firms are not sufficiently limited and can not become qualifying SPEs).

- May hold only financial assets transferred to it that are passive (the holder in making decisions only about servicing). Examples are passive derivative financial instruments, guarantees or rights to collateral.

Variable Interest Entities (VIE)

A VIE is often a holding company, created by another legal entity to hold assets or debt, to carry out operations or handle corporations, partnerships, trusts and limited liability companies. A VIE usually does not have the capital to support itself, so by design it is supported by another entity. The "primary beneficiary" (that has a controlling financial interest in the variable interest entity) consolidates the VIE (assets, liabilities, and profit).

There are several types of "variable interest" like loans, leases, call options, equity investments, written put options, forward contracts, derivatives, guarantees, credit enhancements etc.

According to the FASB Staff Position (FSP) FAS 140-4 and FIN 46(R)-8, public companies must disclose more about transfers of financial assets to QSPEs and VIEs.

Primary beneficiaries, servicers, holders of significant variable interests, transferors and sponsors are primarily affected.

According to the Public Company Accounting Oversight Board, the tough economic environment after the current market crisis led public companies to provide guarantees and financial support to QSPEs and VIEs. They have a "variable interest" or have increased their exposure to the above described entities, and perhaps they gave become a "primary beneficiary".

Their investors have a need to know. Their auditors have the obligation to ask the proper questions. The disclosures about transfers of financial assets in VIEs and QSPEs are meaningful and necessary.
 
     
 

 
Certified Basel ii Professional (CBiiPro)
Basel ii Distance learning and online certification program

The Cost:
US$ 297

What is included in this price:
A. The official presentations we use in our instructor-led classes

B. Up to 3 Online Exams
There is only one exam you need to pass, in order to become a Certified Basel ii Professional (CBiiPro).
If you fail, you must study again the official presentations we have sent you (paragraph A above), but you do not need to spend money to try again. Up to 3 exams are included in the price.

C. Personalized Membership Certificate printed in full color.
Processing, printing, packing and posting to your office or home.

D. The additional Capital Requirements Directive (CRD) official presentations we use in our Basel ii (instructor-led) classes in the countries of the European Union (395 slides).
 
To learn more:
www.basel-ii-association.com/Distance_Learning_Online_Certification.htm