Balance sheet optimization tool : under the Basel III framework

• Autor(a) principal: Bento, João Freire Val
• Data de Publicação: 2014
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/17972
• topic: Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The most recent regulatory framework implemented by the Basel Committee on Banking Supervision (BCBS) was introduced as an incentive to enhance market discipline and supervisory power of the regulatory authorities. However, these changes seem to challenge financial institutions in structural aspects that could negatively impact the profit efficiency. This paper tries to fill this risk management role need by presenting a customized tool that enables banks to effectively manage their balance sheet, while taking into account the constraints required by Basel III. Following that, this paper also investigates the impact of the Basel III requirements on several parameters and finishes with two types of impact studies. The first type addresses the banking regulatory requirements and the second performs stress tests. The study used real data of a Portuguese commercial bank named through the paper as ‘Bank I’. Our results suggest that the tool manages to significantly improve the profitability of ‘Bank I’ while making it compliant with the Basel III framework by finding its optimal balance sheet composition. It also shows that both capital and liquidity requirements have a negative impact on the retained profit. Concerning the results taken from the stress tests we conclude that higher restrictions influence negatively the retained profit and that under certain stress scenarios ‘Bank I’ would present worryingly high losses. The tool does not capture the cost of changing the composition of the balance sheet, even though that would provide relevant information.