Citigroup

Citigroup

Success Story

A Case Study in Basel II compliance Citigroup, with operational presence in multiple countries and an asset size of $1 trillion, did indeed, present a huge challenge for implementing the Basel II mandate. It needed a product to support Basel II processing for the United States and all its local operational jurisdictions. To meet its Basel II compliance requirements, Citigroup chose the Reveleus Basel II Solution. Citigroup is presently implementing this solution across its Investment Banking Group and Consumer Group (Retail) for Credit RWA computation.

Background

New York-based Citigroup Inc., one of the largest financial services companies in the world, has 200 million customer accounts in more than 100 countries. It is divided into three major business groups viz., Global Consumer, Global Wealth Management, and Corporate and Investment Banking. It also includes one standalone business, Citigroup Alternative Investments. The challenge

reporting in other countries is based on local Generally Accepted Accounting Principles or GAAP. Further, apart from the dual GAAP numbers, there is the additional possibility that the approaches followed centrally and locally differ. Architecture flexibility (including compliance with Citigroup standards): Citigroup wanted the solution to integrate with a batch scheduling tool and operate through a single sign-on.

In the USA, Citigroup is expected to be fully compliant

Scalability to address global rollout: Reveleus Basel II

with the international capital rules under Basel II by

was made to undergo a stress test to determine its

January, 2008. Citigroup, defined as a core bank, has

ability to handle large volumes of exposures spread

to use the Advanced Internal Ratings Based (AIRB)

across multiple countries.

approach, as applicable in the USA, to calculate Risk Weighted Assets (RWA) for wholesale and securitization exposures for the USA. In addition to the USA, Citigroup is operating across multiple geographies. This meant that the company had to use two different routes for Basel II compliance. While it had to adopt the AIRB approach in the USA,

Security: The solution had to comply with Citigroup’s internal security norms, which are amongst the most stringent in the industry. Transparency and traceability: One of the biggest challenges in the Basel Accord is enabling Supervisory Oversight under Pillar II. The level

in other countries it had to comply with the approach

of transparency and traceability provided by

prescribed by the local regulator. Therefore, the

Reveleus was one of key reasons why Citigroup

portfolio of each country had to be computed twice,

chose this solution to perform their Pillar I capital

under possibly two different approaches – once under

computations.

Advanced IRB and, then, under the approach mandated by the local jurisdiction. Another challenge was to meet

Why Reveleus?

the acceptance criteria set by Citigroup in terms of

Financial institutions can accelerate their Basel II

volumes and complexities in a global deployment.

compliance initiatives with the Reveleus Basel II

The key expectations from the solution were: Comprehensive support for Basel II framework:

Solution. The open, pre-built solution supports greater readiness, easier deployment, and manageability of the complex rules underlying the Basel accord.

The solution had to cater to Citigroup’s requirements across all approaches (Standardized, Foundation - Internal Ratings-Based (FIRB) and AIRB) for all exposures. Home-host handling capability: Citigroup reports centrally in the USA on a consolidated basis, while

Key benefits

Provides credit, market and operational risk measurement in accordance with Basel II guidelines Basic, standard and advanced internal calculation options are pre-built and delivered in an advanced datawarehouse-based framework for consistency,

Diverse requirements across countries Complexity of implementation Regulators in many countries yet to declare the applicable rules Meeting the technology standards of Citigroup

accuracy and extensibility. True integration of risk measurement systems. Includes complete reporting set to meet even the most stringent disclosure requirements.

The solution is designed as a series of inter-related rules that cover a variety of processes for computing regulatory capital as per Pillar I of the accord. It includes pre-built rules for handling various Exposure Types, Collaterals and Credit Risk Mitigants, assigning Risk Weights, computing Effective Maturity, add-ons for Over-The-Counter (OTC) derivatives, Credit Conversion Factors (CCF) assignments for OBS (On Balance Sheet) items, Netting Arrangements as well as Risk Weighted Asset computations. Reveleus also provides the necessary reporting framework for Pillars II and III, while maintaining exceptional transparency in the calculation rules

The current status of implementation in different regions

Region US global EMEA with CRM Standardized; UK, South Africa, Germany, Poland, Ireland, Pakistan Slovakia and Hungary BANAMEX, Citi Japan, Citi Sri Lanka, Citi Philipines Citi Australia, Citi Thailand, Citi Indonesia and Citi Singapore Citi Korea Citi India

to offer complete supervisory oversight. The entire capital calculation process is executed in a completely transparent and auditable manner. Implementation

Status Advanced IRB in production In production

Completed

Work in progress (single instance) Work in Progress for Standardized Approach Work in Progress for the new RBI guidelines

Citigroup is now confident that the system is already materially in compliance with the regulatory requirements laid out by the Bank for International Settlements. It will only need subsequent release of new

Citigroup implemented Reveleus Basel Solution

rules for compliance with the regulatory requirements in

in Citigroup–USA consolidated and across all its

other regions.

subsidiaries in different countries. Two separate Reveleus instances were installed for the two groups at New York,

Benefits

USA, namely Citigroup Corporate/ Investment Banking

Supervisory oversight, as per Pillar II and capital

Group and Consumer Group (Retail).

calculation as per Pillar I of Basel Accord are enabled

The implementation team at Citigroup understood the requirments of the company, and came up with a solution that would integrate well with the architecture.

by the Rules. The Reveleus solution performs the entire capital calculation in a transparent manner, which makes the whole process auditable and enables supervisory review.

The implementation process started with pilot initiatives covering the various product types in Citigroup.

Reveleus Basel II Solution was built with the assumption

Following the pilot projects, the team went on to

that for a bank, no single approach will be applicable.

complete the implementation of securitization exposures,

In all probability, a bank may need to follow multiple

covering Asset-Backed Commercial Paper (ABCP)

approaches simultaneously for different sub-portfolios.

conduits. The implementation covered the Supervisory Formula Approach (SFA) and Internal Assessment

The Reveleus Basel II advantage for Citigroup:

Approach (IAA) approaches. Reveleus later completed

Accelerated Basel II compliance: Reveleus Basel

the Wholesale (AIRB) implementation, covering non-

II Solution has enabled Citigroup to accelerate its

securitization exposures, for USA in January, 2007.

Basel II compliance initiatives. Citigroup can now rapidly deploy calculations for capital adequacy,

After this, the team took on the challenge of meeting Citigroup’s global requirements. They started by

thereby reducing the cost and complexity of Basel II compliance.

capturing the national discretions required in each jurisdiction and defined rules that met the local

Manage home-host issues: Reveleus’ flexible solution

reporting requirements.

has enabled Citigroup to configure different rules

for consolidated calculations in the head office and

Meeting the acceptance criteria set by Citigroup

for entities operating in other countries as per local

in term of volumes and complexities in a global

supervisory guidelines.

deployment.

Concurrently compute capital using multiple approaches: Reveleus Basel II Solution has provided Citigroup with a generic framework to implement multiple approaches – Standardized, Foundation Internal Ratings-Based (FIRB) and AIRB for Credit

The road ahead

As and when the local regulators in the 100 operational jurisdictions of Citigroup finalize and publish the applicable rules, Reveleus will provide Citigroup with standard rules ‘out of the box’. Reveleus Basel II is

Risk or Basic Indicator, Standardized and Advanced

already tuned to meet this requirement by providing

Measurement Approach (AMA) for Operational Risk,

the Continuous Compliance Service, which constantly

simultaneously configuring them as different ‘Runs’

monitors guidelines issued by various regulatory bodies.

within the Reveleus Basel II Rules Framework.

On finalization by local regulators, Reveleus will ship the

Citigroup can now easily configure multiple Runs,

rules for different jurisdictions.

measure the impact of the capital computations under different approaches, and compare the results on a periodic basis. Further, Reveleus Basel II helped Citigroup in:

Conclusion

Reveleus has enabled Citigroup to meet even the most demanding Basel II guidelines. Citigroup now has a coherent framework to handle operational risk. The

Meeting the RWA calculation requirements

inherent flexibility and robustness of the Reveleus

worldwide by:

Basel II Solution has eliminated the need for expensive custom programming and time-consuming application

Covering the requirements across wholesale,

maintenance. Reveleus has thus helped Citigroup move

retail and securitization exposures.

beyond Basel II and manage risk sensitivity and capital allocation. Citigroup is now well-placed to address the

Managing the regulatory challenges globally thus

ever-changing regulatory requirements and keep up with

meeting the local reporting requirements.

emerging business needs and market trends.

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