IBM's Banking Data Warehouse and Basel II

Banking Data Warehouse and the
International Convergence of Capital
Measurement and Capital
Standards: A Revised Framework

BDW Version 3.4
and the
Basel II Capital Accord


Whitepaper

December 2005 Banking Data Warehouse and the Basel II Accord Whitepaper Page 2

About this Paper Contents The purpose of this paper is to outline the components of the Banking Data Warehouse (BDW) and how they assist financial institutions to address the data modeling and data consolidation issues relating to the Basel II Capital Accord. This paper is divided into the following chapters: Chapter 1 Page 3 Data Integration and the Banking Chapter 1, "Data Integration and the Banking Data Data Warehouse Warehouse" summarizes the benefits of the BDW as a central data repository for the financial institution. Chapter 2 Page 6 BDW support for the New Basel II Chapter 2, "BDW support for the New Basel II Accord Accord" summarizes the enhancements to version 3.4 and how these address the Basel II Revised Chapter 3 Page 8 Framework. BDW Components and the Basel II Architecture Chapter 3, "BDW Components and the Basel II Architecture" describes briefly an overall functional Chapter 4 Page17 architecture for Basel II and how each of the BDW Banking Data Warehouse components fit into this architecture. Components Chapter 4, "Banking Data Warehouse Components" Chapter 5 Page 20 outlines each of the BDW components. BDW support for Industry Directives based on Basel II Chapter 5, "BDW support for Industry Directives based on Basel II" discusses various Industry Chapter 6 Page 26 Directives and how the BDW can address their Customer Example requirements. Chapter 6, "Customer Example" outlines how one bank is using the BDW for its enterprise-wide Basel II solution.
Banking Data Warehouse and the Basel Capital Accord White Paper Page 3 Data Integration and the Banking Data Warehouse Financial institutions are facing a series of related risk and compliance challenges. These include: Executive management and regulators . Basel II want a coherent view of both risk and . IFRS / IAS financial data The pace of change driven by the compliance challenges will be different across financial institutions. However, there is now a general recognition that the long term direction of aligning economic and regulatory capital means that risk weighted asset and economic capital calculations should eventually become a key driving force for decisions within the financial institution. Risk weighted Asset and economic The long term business of a financial institution is dependant on capital calculations should eventually maximising return on capital. Risk weight asset and capital become a key driving force for calculations may be utilised to provide bespoke pricing. This decisions within financial institutions allows the financial institution to determine which products should be promoted to which customers to achieve maximum return on investment and so becomes the driver for marketing and relationship management. There is a need to align the data structures that drive risk and financial data. These are: 1. Transactional data that covers all types of transaction and links the financial results of each transaction with the risk and financial objectives of the financial institution 2. Asset data that covers all types of assets that might be linked to the transaction, the valuation of these assets and the correlation of asset behavior 3. Customer data for all counterparties which includes the credit risk of the counterparty and makes provisions when new information or circumstances changes that risk. Detailed data on customer is required to support product selection and pricing in addition to other relationship management decisions.
Banking Data Warehouse and the Basel Capital Accord White Paper Page 4
There are different ways to view this data - and not all are well-
represented by either risk or financial systems. Executive
management and regulators want... [download for more]