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Possible Unintended Consequences of Basel III and Solvency II


This presentation (based on an IMF working paper) explores similarities and differences between banks and insurers and between Basel III and Solvency II. It then highlights possible unintended consequences of Basel III and Solvency II on topics such as cost of capital, funding patterns, interconnectedness and product and/or risk migration.

[as pdf]

Slides
1Possible Unintended Consequences of Basel III and Solvency II
2Agenda
3Typical bank and insurer business models differ
4They also have different funding bases (excluding equity) …
5Different capital levels …
6Different accounting bases …
7And different perspectives on Pillar 1 versus Pillar 2
8Although some business overlaps (and conglomerates!)
9Basel III and Solvency II: Different histories and drivers
10Basel III and Solvency II Capital Tiering (Pillar 1) (1)
11Basel III and Solvency II Capital Tiering (Pillar 1) (2)
12Basel III capital requirements
13Calculation of required Pillar 1 capital (banks)
14G-SIBs
15Calculation of required Pillar 1 capital (insurers)
16G-SIIs
17Risk Aggregation (Pillar 1)
18Possible unintended consequences
19Cost of capital
20Funding patterns and interconnectedness (1)
21Funding patterns and interconnectedness (2)
22Banks’ debt funding sources by type of investor
23Funding patterns and interconnectedness (3)
24Risk / Product transfers (1)
25Risk / Product transfers (2)
26Policy considerations
27Summary
28Important Information



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