Move away from the approved IRB with TPRM accounting Fintech interaction as recommended by the FED's interagency letter of June 7, 2023, with FDIC and OCC (without changing anything to the existing IT) to mitigate credit risk or counterparty credit risk as required for the CR3 Template (Credit risk mitigation techniques) mandatory for all banks to provide at each reporting date carrying value accounts related to the Business Indicator (BI) which is a financial-statement-based proxy for operational risk avoiding you, thanks to the financial Earnings Supplement generated, to deprive shareholders of their remuneration.
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Alignment for financial stability concerns.
This required update to provide carrying value accounts of the Template CR3 (Credit risk mitigation techniques) aligns you with the financial stability concerns of the central bank and supervisory bodies to measure the impact on Public Debt or sovereign debt and the absorption of budget deficits without increasing taxes.
Technology Milestone Stakes to be Crossed.
Internal rating-based approaches (IRB) do not mitigate operational risk losses that directly affect your cash flow as well as counterparty credit risk (risk of a borrower defaulting).
TPRM accounting Fintech interaction gives you both the ability to control vectors of credit risk.
- Vector 1which is the overall financial position of the bank, in terms of losses it can incur while being able to operate efficiently.
- Vector 2,which is to know a specific customer (the third party). Having accounting data to understand both their history and their financial situation, as well as their general financial behavior in real time, to assess the level of risk they present in the event of a loan default. Vector 2 allows the bank to adapt a customer's loan agreement so that it has more or less strict conditions, depending on their level of risk.
Log in to stop losing money and Recover Earnings Supplement that you lose by using Internal Rating-Based (IRB) stochastic (statistical and probability) technology which even if approved for transition, does not mitigate losses.
Simulate, Evaluate & Compare your Losses including Earnings Supplement that you lose by persisting in using the approved IRB despite the CR3 template mandatory for all banks). At the same time, you update the skills of your internal team by Learning by Doing on App. of each workstation.
Whatever the IRB (Internal Rating-Based) approach you use, IRB is a hit-or-miss approach that doesn't take you out of uncertainty. Hence the methodological paradigm shift in risk management and loss mitigation that is required of banks and third parties. Even if IRB is approved for the transition, all must migrate to a management accounting system (the standardized approach) for the recognition of credit risk mitigation, such as collateral and guarantees.
The TPRM accounting Fintech interaction is the only system built for this (cf. FED-FDIC-OCC interagency letter of June 7, 2023, recommending you migrate).
The requirement to abandon the IRB approach (statistics and probabilities) inherited from Basel II which does not mitigate losses is explicit:
“Banks must include all CRM techniques used to reduce capital requirements and disclose all secured exposures, irrespective of whether the standardized or IRB approach is used for RWA calculation” (BCBS, DIS40 - Credit risk, effective as of: 01 Jan 2022).
The legal framework is that set on January 1, 2023, by the BCBS for the implementation of the final Basel III reforms, the transposition of which varies considerably on a worldwide scale from 2023-2024 for some countries such as Canada, Japan, Singapore, China and Hong Kong to 2025 for other countries including the EU, the United Kingdom and the United States.
Loss Mitigation Interaction Products and Services offered in SaaS mode:
Step 1/ Programming your carrying value accounts based on cross-cutting interactions mobilizing your Total Paid Workforce or human capital as the driving force.
Log in for the carrying value contents of the forward-looking management accounts of template CR3 (Credit risk mitigation techniques): Request free access to Fintech SAF - V1
These are the processes of identification, collection and treatment of internal loss data that are essential prerequisites to capital calculation under the standardized approach for forward-looking management accounts to be programmed on a three-year plan to provide at each reporting date, the carrying value accounts of the Business Indicator (IB) which is a financial statement-based proxy for operational risk for the recognition of credit risk mitigation, such as guarantees and collateral (CRE22 - Standardized Approach).
Step2/ Train and certify your internal team in automated interaction
Click for HCMA certificate order form
This is to update the interaction skills of your internal team by learning by doing in 90 days, each at their workstation: the software is free until the 1st quarter reporting.
(1) CEO for Board decision making system.
(2) CFO for internal financial performance coordination system.
(3) HRD for motivation data based on incentive paid mobilizing the total paid workforce on internal financial performance objectives considering the risk appetite threshold. HRD tasks include monitoring of psychosocial risks.
(4) Operational Managers (OM) and Heads of operational units for “identification, collection and processing of loss data” (OPE25) providing non-GAAP carrying values linked to the Business Indicator (BI) which is a financial-statement-based proxy for operational risk. OM interaction tasks include variable pay or incentive paid statements.
“To be or not to be IRB – Which capital approach to take is the question?”
Consider the warning from Deloitte Risk Advisory (July 2023) to move away completely from the IRB before suffering even more serious harm since all IRB approaches, whatever they may be, are random.
The internal ratings-based approach to credit risk, which dates back to 2001 (BIS, Supporting Document to the New Basel Capital Accord issued for comment, January 2001), therefore before SOX act and other countries' internal control laws and which governed Basel II with the consequences we know with the financial crisis of 2008 and the bank failures of early 2023, allows banks to model their own data to calculate risk-weighted assets at their own risk based on credit exposures to retail borrowers, corporates, financial institutions and sovereigns borrowers, subject to supervisory approval.
Serious micro-macro consequences when you still use the IRB.
The IRB does not free you from the uncertainty of your future accounting results, nor from the risk of bank failure, nor from the risk of failure of third parties in the banking pool.
The consequences of delaying the abandonment of the IRB are particularly damaging:
(1) Even provisionally approved stochastic approaches based on statistics and probabilities do not generate cash surpluses from internal loss mitigation processes and remain factors of aggravation of expenses and losses since, randomly, without removing the bank from the uncertainty of its future accounting results, nor from the bankruptcy, both of the bank and of related third parties, 15% of the average turnover of the last 3 years is allocated to the hedging capital.
(2) Persisting in error or fear of change, you deprive the central bank and supervisors of the extension of the reporting of the carrying values accounts of forecast management of banks and third parties to consider for programming the strategic management of the impact of the CR3 template on the macroeconomic capacity to mitigate budget deficits and public debt avoiding budget cuts and tax increases. Refer to the World Bank and IMF Assessing Reserve Adequacy - ARA concern (April 2024). For more, read the paragraph “Considerations for aligning your loss mitigation with the central bank or supervisory overview”
The peer-reviewed micro-macro case studies we have published (nearly 10 to date) provide you with data comparing the costs and benefits of carrying value accounts of banks and third parties (3 banking pools with 1 bank, 1 insurer, 1 industry, 1 service company and 1 local authority, i.e. 15 entities in total) as well as the macroeconomic impact of the CR3 model (risk mitigation techniques) on deficits and public debt, taking into account the corporate tax (CIT) rates of 185 developed and developing countries.
Considerations for aligning your loss mitigation with the central bank or supervisory overview.
This paragraph summarises what you need to know for a high-level overview of the micro and macro impact of your disclosed carrying value accounts for CR3 compliance (credit risk mitigation techniques) to align your vision with the objective of the central bank Fintech Innovation Hubs:
"As the financial industry adopts new technologies, we need to understand how they affect central banks' core work. Central banks are actively examining the potential for novel technologies to help deliver on their mandates " (Cecilia Kingsley, Head of the BIS, Innovation Hub, September 16, 2024).
(1) What's so bad about Internal Ratings-Based (IRB) approaches ?
Inherited from stochastic approaches used under Basel II, IRBs contain the same shortcomings that caused the 2008 financial crisis. Even provisionally approved by the national supervisor, stochastic approaches based on statistics and probabilities do not generate cash surpluses from internal loss mitigation processes and remain factors of aggravation of expenses and losses since, randomly, without removing the bank from the uncertainty of its future accounting results , nor from the bankruptcy, both of the bank and of related third parties, 15% of the average turnover of the last 3 years is allocated to the coverage capital.
•See bank failures of 2023: Citizens Bank, Heartland Tri-State Bank, First Republic Bank, Signature Bank, and Silicon Valley Bank). See also the Deloitte Risk Advisory Nordics warning from July 2023.
(2) Impact on the strategic management of corporate income tax (CIT)
The reporting of the carrying value accounts of the CR3 Template (Credit risk mitigation techniques) provides Supervisors, in particular, central banks and corporate tax (IS) officials with the data that has been lacking until now in all countries for the programming and strategic management of deficits and public debt.
This avoids budget cuts and tax increases.
For example,
France, whose public debt as of September 27, 2024, according to INSEE is €3,228.4 billion (or 3, 530.58 billion USD), is struggling to find €60 billion to bring its deficit back to the 3% limit set by the European Commission. France is unaware that the banks' compliance with the carrying value accounts of the CR3 Template (Credit risk mitigation techniques) opens to the public treasury, considering the corporate tax rate of 25%, a margin of maneuverer for accounting result's Cash Surplus of $99,998,713,307.19 to be programmed on a 3-year plan (See book currently being published).
The compliance framework for French banks and third parties is governed from January 1, 2025, by the Directive adopted by the Council of the European Union, P9_TA (2024)0363, Wednesday April 24, 2024 - Strasbourg.
It is all the more urgent for France to accelerate the compliance of banks and third parties of banking pools with the CR3 Template governed by the European directive in force from January 1, 2025 that the In order to finance its expenses and renew its previous debts, on the sidelines of the presentation of the budget for 2025 by the government, the Agency France Trésor (AFT) revealed that France would have to raise a record amount of 300 billion euros (or 328 billion USD) in 2025 to finance its expenses and renew its previous debts (Capital with AFP, published on 10/10/2024).
(3) Outlook for micro and macro benefits as banks and third parties move away from random IRB-based approaches, even if approved
This data is taken from the book currently being published. This book provides for 185 countries, the data to answer the question that deficit avoidance and public debt mitigation managers, including central banks and supervisors, should ask themselves for monitoring policies:
- How much does the public treasury benefit from the Template CR3 of Credit risk mitigation techniques mandatory for all banks and third parties of a banking pool to provide carrying value accounts linked to the Business Indicator (BI) which is a financial-statement-based proxy for operational risk ?
3.1/ At the micro bank level for "On-balance sheet netting" under paragraph 22.68 of CRE22,
- Pool 1 bank saw its total unencumbered cash accounts (Bank EC + Customer EC) increase from "$0" before OPE25 to $9,685,274,442 after OPE25.
- Pool 2 bank saw its total unencumbered cash accounts (Bank EC + Customer EC) increase from "$0" before OPE25 to $8,303,585,037 after OPE25.
- Pool 3 bank saw its total unencumbered cash accounts (Bank EC + Customer EC) increase from "$0" before OPE25 to $8,499,635,572.
3.2/ At the macro level.
A/ At the macro level of developed countries
- The results and impact data to be programmed and planned for the prospective and strategic management of deficit and public debt mitigation is particularly significant.
If we take the United States for example, we see that the USA has $450,147,106,579.58 in accounting results as cash surplus to be programmed on a three-year plan to mitigate deficits and absorb public debt based on the cash surplus of the Risk-Weighted Assets (RWAs) of the Bank Pools.
-Expected impact on the US Public Debt: the rate of the US public debt compared to the cash surplus (CS) of the accounting result of the three-year recovery plan of the RWA of the banking pools is 6.86%.
-This gives the United States on the tax rate of 21% a margin of absorption of its public debt with 30% of the CS programmed the 1st year, or $135,044,131,973.87, for the 2nd year 60% of the CS programmed, or $270,088,263,947.75 and for the 3rd year 100% of the CS programmed, or $450,147,106,579.58.
B/ At the macro level of developing countries.
- The results and impact data to be programmed and planned for the prospective and strategic management of deficit and public debt mitigation is also particularly significant.
If we take China for example, we see that China has $2,448,502,666,135.83 of accounting results in excess cash to be programmed on a three-year plan to mitigate deficits and absorb public debt based on the excess cash of risk-weighted assets (RWA) of banking pools.
- Expected impact on Chinese Public Debt: the ratio of Chinese public debt to the cash surplus (CS) of the accounting result of the three-year plan for the recovery of RWAs of banking pools is 0.56%.
- This gives China on the tax rate of 25% a margin of absorption of its public debt with 30% of the CS programmed in the 1st year, or $734,550,799,840.75, for the 2nd year 60% of the CS programmed, or $1,469,101,599,681.50 and for the 3rd year 100% of the CS programmed, or $2,448,502,666,135.8.
(4) Legal framework to abandon random Internal Ratings-Based (IRB) approaches for an accounting system
Compliance falls within your legal framework set on January 1, 2023, by the BCBS (CRE22 - Standardized approach: credit risk mitigation) for the implementation of the final Basel III reforms, the transposition of which varies considerably on a worldwide scale from 2023-2024 for some countries such as Canada, Japan, Singapore, China and Hong Kong to January 1, 2025 for other countries including the EU, the United Kingdom and July 1, 2025 the United States.
See details below:
Moody's Recap: https://www.moodys.com/web/en/us/insights/regulatory-news/implementation-status-of-final-basel-iii-reforms-varies-across-globe.html
Click here for the full country table : https://www.fsb.org/uploads/P111023.pdf#page=36
H. Formalize your orders for pro-forma invoicing
