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Solutions: DECISION MANAGEMENT

Basel II Accord

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Basel II - The Three Pillars

The framework defined by the Basel II Accord consists of three pillars that together, seek to increase financial stability by better aligning a bank's regulatory capital to the actual risk, by supervising this process, and by rewarding banks that successfully implement it.

The first pillar of the Basel II Accord, Minimum Capital Requirements, specifies how a bank's capital requirements can be better aligned to the actual risk. It is the essence of the Accord. The second pillar, Supervisory Review, refers to a mandatory supervisory review of the methodologies that a bank implements to meet the requirements specified in the first pillar. The third and final pillar, Market Discipline, further supports this by insisting on a high degree of transparency. A bank is obliged to have a formal disclosure policy regarding its financial condition and performance.

basel II credit risk mitigation

Chordiant Decision Management solutions contribute to the first pillar of the Basel II Accord. This first pillar distinguishes three types of risk: credit risk, operational risk and market risk. The first type deals with the risk of losses caused by a default on a loan (or equivalent). The second type deals with the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The third type deals with the risk of losses due to the volatility of the market price of assets.

Chordiant Decision Management solutions fully support the entire Internal Ratings Based (IRB) approach toward credit risk management. You can find out more about this approach by watching our video.

To learn more about the Internal Ratings-Based and how Basel II credit risk mitigation can help you reduce credit risk and simultaneously assist with your Basel II compliance orders, please download our whitepaper entitled, A Solution for Basel II Compliant Credit Risk Management.

As more and more large US banks consider the implications of the Basel II Accord, they recognize the benefits that can be won with early compliance to these regulations. This white paper explores the ramifications of the accord and how banks around the world can begin to better assess their business and operational risks using the IRB-based approach. Basel II Accord: Implications for the US Banking Market.

Solutions

Chordiant Decision Management for Basel II—Chordiant Decision Management enables the calculation of the probability of default and other risk components that can be derived from internal or external data. Highly predictive and reliable rating models can be safely and quickly developed by analysts without formal training in statistics. Besides the transparency dictated by the Basel II Accord, Chordiant Decision Management also implements a strong methodological foundation under Basel's Internal Ratings Based approach.

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