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Since the 2008 crisis, the financial industry has been assailed by an endless number of regulations. Whether brand new or steps in a journey – that nobody knows when it will end – each regulation influences the financial world. They have even become one of the main challenges for the market.
Mainly implemented to enhance the financial stability of the industry or to protect customers, they are too often perceived as significant costs for companies. Indeed, the price of reaching compliance is not to be underestimated as it includes both people and technology.
However, by choosing the right approach to their implementation, the firms impacted could actually save time and money in the long run. But to do so, they need to take well thought-out and judicious actions that best suit their business. These include strategic, operational and tactical responses. The implementation journey is therefore long and difficult.

Basel III --- Solvency II --- MiFID II --- opportunities --- Sciences économiques & de gestion > Finance

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Financial institutions rely on forecasts of risk measures for the purposes of internal risk man- agement as well as regulatory capital calculations. In this context, an important part in esti- mating risk is to evaluate how accurate the forecasts have been. This procedure is generally called backtesting. The Basel III Accord, is an internationally agreed set of recommendations developed by the Basel Committee on Banking Supervision (BCBS) in response to the global financial crisis of 2008. In this regulatory framework, a financial institution that intends to use an internal models approach (IMA) must conduct, amongst other requirements, some backtesting.
As a key element of the post-crisis evolving regulatory framework, new standards for the mini- mum capital requirements against market risk exposures, adopted in 2016 and revised in 2019, introduce a shift from a Value-at-Risk (VaR) risk measure to an Expected Shortfall (ES) risk measurement approach. While the move from the VaR to the ES allows to tackle some deficiencies of the VaR, such as the coherence property and the ability to look at the tail-risk of the loss distribution, the shift from a quantile-based risk measure to a tail risk measure raises a number of theoretical questions, such as the effectiveness of backtesting; in particular it brings some new challenges regarding the backtesting of the ES models. This in-hand work starts by providing the needed theoretical background as well as a state-of- the-art of the ES backtesting methodologies proposed in the scientific literature to set up the foundations. Then, it aims at identifying a suitable ES backtesting framework - both mathemat- ically consistent and practically implementable - that a financial institution could implement in the near-future in the use of the new models based approach, meanwhile considering the associated revised regulatory requirements. Finally, an empirical research study is proposed in order to state on the relevance of the identified ES backtesting framework, but also more fundamentally on the pertinence of the new risk measurement approach in itself.

Expected Shortfall --- Backtesting --- FRTB's IMA --- Basel III reforms --- Sciences économiques & de gestion > Finance

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This thesis was written as part of a project thesis carried out within the Risk Department of Banque Havilland. The projects it defines and presents have been designed as part of the development of interest rate risk management tools to meet the European Banking Authority's recent requirements in this area. The purpose of this thesis is to present this new regulation, document the tools used and issue conclusions based on the analysis of the results obtained. The overall project is divided into four major parts. 

The resistance test
The first step, after understanding the regulatory framework and the various legal texts relating to interest rate risk, was to measure the bank's exposure, in terms of economic value and future income, to various scenarios for changes in the yield curve. This measurement was carried out using a resistance test. To do so, we had to make different assumptions, follow the calculation methodologies recommended by the European Banking Authority and apply different scenarios for changes in the yield curve. The results of this test are presented in the conclusion section.

Interest rate risk management procedure
Based on these measures, we have developed an interest rate risk management procedure, including the definition of the risk, the selection of the instruments concerned, the calculation methodologies, the bank's "Risk Appetite" in this area as well as the distribution of roles and the procedure to be followed in terms of governance.

Development of a main component analysis
This main component analysis was developed to analyze the dynamics of the yield curve and with the final objective of finding other shock scenarios for this curve to apply to our stress test. In addition to the exploration of the theoretical concept, this thesis explains the methodology used, some problems encountered and the results of the analysis.

Design of new scenarios via Monte-Carlo simulation
Two scenarios of changes in the yield curve were developed by simulating many linear combinations of these main components. The methodology followed and the results of this "Monte-Carlo" are presented in this thesis.

Assets and Liabilities Management --- Banque Havilland --- Interest rate Risk --- principal component analysis --- Monte-Carlo Simulation --- IRRBB Management --- Basel III --- EBA Guidelines --- Market risk --- Sciences économiques & de gestion > Finance