#Banking #Finance #Baselian parametersPD, LGD, CCF #RWA& ECL metrics #Creditrisk modeling #Risk calculators

Background & challenges

On October 27, 2021, the European Commission published a new banking risk management framework designed to strengthen banks' resilience and better prepare for the future.

The package consists of three parts:

  1. Implementation of the final Basel reform (Basel 4/CRR3)
  2. Banks' contribution to green finance
  3. Enhanced bank supervision (to ensure sound management of EU banks and protect financial stability)

As part of the new Basel 4 requirements, the European Commission's key amendment proposal concerns capital requirements, known as CRR3, covering credit risk, credit value adjustment risk, market risk and floor capital.

In response to this new credit risk management framework, our client Société Générale called on the expertise of one of our consultants to work on a project involving the implementation of a dual credit risk calculation engine, taking into account both CRR2 requirements and the new requirements introduced by the CRR3 amendment.

Solution provided

Quanteam helped the customer implement a new generation of engine using AWS Fargate and AWS Step Function solutions. Our consultant's expertise enabled us to meet the customer's need to develop a new API organized into independent calculation components aligned with the Credit Risk business function.

To meet the customer's needs, our consultant was involved in all four phases of the project:

  • Stream 01: Development of a new technical foundation (with new data model)
  • Stream 02: Implementation of the CRR3 regulatory package
  • Stream 03: Static certification of metrics
  • Stream 04: Dynamic metrics certification

For each of these phases, our consultant contributed his expertise in terms of project scoping, comitology and steering, definition of test strategies, certification and production deployment.

Customer benefits:

Our dual expertise in Project Management and business knowledge of Credit Risk enabled the customer to :

  • Development of a dual capital calculation engine for all types of risk
  • Implementation of the "Revised Standard" Basel method for Output Floor calculation
  • Updating calculation functionalities for Basel-based internal models (Interna Rating Based Approach)
  • Introduction of new RW weightings for the Specialized Financing asset class
  • Implementation of a double calculation system in the RWA engine for quantifying floor capital.
  • Smart management of credit risk weighting calculation according to new CRR3 requirements
  • Consolidation of processes and architectures to optimize processing and align results
  • Process optimization and audit trails
  • Integration of the new PD, LGD and CCF models in the new double calculation base

Quanteam expertise makes the difference

  • Excellent knowledge of the European banking and regulatory environment
  • A team of consultants created for this consulting mission
  • A team of consultants dedicated to supporting Finance and Risk functions in their regulatory and operational transformations
  • A team of consultants to implement a new generation of calculation engines for risk quantification
  • Proven experience in modeling credit and counterparty risks
  • Experience in developing models for calculating IFRS 9 provisions

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