Basel - risk weighted assets; anyone know the percentages?

[claphands22]

Anyone know where to find a complete list of all the assets a bank could have and their corresponding basel risk weights?

 

For example, I know AAA sovereign debt has a 0% risk weighting, but AAA corporate debt has a 20% risk weighting. Yet, I don't know what would be the risk weighting for foreign equities, heloc loans, 2nd mortages, preferred stock...and so forth.

 

I am trying to figure out what kind of tier 1 capital BAC would have if they sold off some of their "riskier" assets in order to increase their tier 1 capital...but without a complete list of their associated risk weights, I can't really figure it out.

 

Thanks =) 

[vinod1]

Anyone know where to find a complete list of all the assets a bank could have and their corresponding basel risk weights?

 

For example, I know AAA sovereign debt has a 0% risk weighting, but AAA corporate debt has a 20% risk weighting. Yet, I don't know what would be the risk weighting for foreign equities, heloc loans, 2nd mortages, preferred stock...and so forth.

 

I am trying to figure out what kind of tier 1 capital BAC would have if they sold off some of their "riskier" assets in order to increase their tier 1 capital...but without a complete list of their associated risk weights, I can't really figure it out.

 

Thanks =) 

 

Risk weighting is done at a much more fine grained level - using loan level data. So I do not think you can calculate it from the data in financial statements. Also there are lots of off-balance sheet items like derivatives and standby letters of credit, etc that need to be included. Finally it is not just a cumulative weighted addition but it has some complicated (means I do not understand :) ) calculation that takes into account the correlations. Different companies can come up with different total RWA for the same balance sheet. Dimon has complained about this in the past.

 

Vinod

[twacowfca]

Anyone know where to find a complete list of all the assets a bank could have and their corresponding basel risk weights?

 

For example, I know AAA sovereign debt has a 0% risk weighting, but AAA corporate debt has a 20% risk weighting. Yet, I don't know what would be the risk weighting for foreign equities, heloc loans, 2nd mortages, preferred stock...and so forth.

 

I am trying to figure out what kind of tier 1 capital BAC would have if they sold off some of their "riskier" assets in order to increase their tier 1 capital...but without a complete list of their associated risk weights, I can't really figure it out.

 

Thanks =)  

 

Risk weighting is done at a much more fine grained level - using loan level data. So I do not think you can calculate it from the data in financial statements. Also there are lots of off-balance sheet items like derivatives and standby letters of credit, etc that need to be included. Finally it is not just a cumulative weighted addition but it has some complicated (means I do not understand :) ) calculation that takes into account the correlations. Different companies can come up with different total RWA for the same balance sheet. Dimon has complained about this in the past.

 

Vinod

 

 

VAR (value at risk) is what is usually used.  The problem is that it's biased toward a normal distribution even though Monte Carlo simulations are frequently used.  Most financial markets exhibit "fat tails" , especially skewed toward the downside, and the phenomenon of supposedly uncorrelated assets suddenly becoming highly correlated when markets are stressed.  VAR is useful in making short term predictions, but it can be misleading if used to predict  the risk of permanent loss of capital.

[vinod1]

This is speech that might be of interest to you. Shows a study on how banks calculate risk weights differently and that it might impact the capital ratio calculation by about 2%.

 

http://www.bankofengland.co.uk/publications/speeches/2011/speech484.pdf

 

Vinod

[claphands22]

Thanks for the replies. Yet, I'm still pretty thick and even though I read that document from the Bank of England, I didn't get much out of it.

 

Anyone have any other documents/books/sites to read to understand these basel requirements a bit better? I understand getting exact number for the risk associated with certain assets is impossible since the assessed risk can get based on too fine of detail...but I'd be happy with just a rough understanding how certain assets are assessed. 

 

What I am trying to figure out is, if Bank of America sells their entire stake in China Construction Bank, how would that affect their tier 1 capital....I'm guessing that equity stake has a much higher risk weighting than most assets and if they sold off their stake it could lower fears of a possible equity raising. (BAC stake in CCB is coming off the lock-up period at the end of August from what I understand)

 

Yet any good reads on how basel II tier one capital is calculated (sans Wikipedia) would be highly appreciated.

 

Thanks =)

[vinod1]

Try this link http://www.federalreserve.gov/generalinfo/basel2/npr_20060905/npr/section_5.htm

 

Vinod

[spin]

http://www.bis.org/publ/bcbs189.htm

 

g/l

 

Spin

[claphands22]

Try this link http://www.federalreserve.gov/generalinfo/basel2/npr_20060905/npr/section_5.htm

 

Vinod

 

Thanks Vinod =)

[claphands22]

http://www.bis.org/publ/bcbs189.htm

 

g/l

 

Spin

 

Spin! Good seeing you back on here. Thanks for the link =)