A new system for calculating regulatory equity

LBS Bayern complies with risk regulations with SAS®

LBS Bayern, the No. 1 building and loan association in Bavaria, relies on SAS® for help calculating the right amount of equity required to comply with regulations governing credit and market risk.

Around 1.5 million customers in Bavaria have one or more LBS building and loan savings agreements, with a total value of almost 47 billion euros. LBS is a member of the Bavarian sector of the Sparkasse Financial Group.

Regulators require banks to quantify their risks and back them with capital in order to hedge against credit default risks and market price risks. As much regulatory capital as necessary, as little as possible – that is the principle that financial institutes have always used to calculate their own funds. The equity ceiling has to be large enough to absorb the risks, but as small as possible to prevent capital being tied up unnecessarily.

With SAS we were able to implement the demands of the new regulatory requirements extremely efficiently within just nine months.

Sabine Wolf
Head of the Data Warehouse Team

For years, "Principle 1" of the German Banking Act determined which criteria would serve as the rule for assessing the suitability of the capital requirement. This regulation was replaced by Basel II and the conversion to national law as part of SolvV (Solvabilitätsverordnung, solvability regulation).

The regulation resulted in a fundamental reformation of how supervisory equity requirements were calculated. Banks could choose whether to use a simple approach (standard approach) or a complex approach based on internal ratings. The new regulatory condition forced financial institutions to set up a completely new system for calculating regulatory equity within a short amount of time.

This was true for LBS as well, which had been calculating its capital using a standardized formula based on Principle 1. Since the internal rating-based approach was a completely different approach, expanding the existing process was not an option. "We were faced with the task of entering into completely new territory – and doing so quickly, since the schedule was tight," remembers Sabine Wolf, Head of the Data Warehouse Team at LBS Bayern. That is why LBS' management had Carola Zaiss-Hillmeister, the project manager in charge of Basel II, set up a new equity calculation system that conformed with the regulatory requirements.

The solution

Since September 2007, LBS Bayern has used SAS to ensure a SolvV-conforming, reliable calculation of the equity that needed to be reserved. The core of the system is a data warehouse in which all of the risk-relevant data is consolidated, including all of the contract and scoring data, as well as information on customers in default, monetary investments and securities.

Most of the data came from an in-house development based on DB2, but also from operative SAP systems. The data is all prepared on a specific key date, ensuring that the equity calculation is always based on the latest information. Some data was already stored in a data warehouse provided by SAS, and some data came from applications that had yet to be connected. The equity is calculated automatically. Moreover, meaningful, reliable and consistent result, scenario and ad-hoc analyses, not to mention stress testing, are possible in addition to the supervisory calculations. The results from the equity calculation are automatically transferred to the equity report. The report is then created using the SAMBA solution by LogicaCMG.

During the solution selection process, the specialist and IT departments at LBS Bayern looked at a variety of solutions, including solutions from numerous consulting companies specializing in Basel II. They found that their best option was SAS, the leader in business intelligence. "SAS was able to offer an established product that could be specifically configured to our business needs and that was flexible enough to cover LBS Bayern's current – as well as future – individual requirements, and that at an attractive price," explains Wolf.

Moreover, SAS guarantees the desired reporting and data provision flexibility and offers user-specific interfaces. LBS was also impressed with the ease with which the SAS solution could be integrated into the existing IT landscape. Finally, the company had already had positive experiences with its existing SAS data warehouse for sales management, reporting and balance sheet creation.

The SAS system was especially flexible in regard to the simultaneous support of different calculation approaches possible according to SolvV. "The solution enables calculations based on the standard credit risk approach (KSA), as well as the internal rating-based approach (IRBA)," explains Thomas Oberberger, member of the Control Team of the Basel II project.

LBS' parent company Bayerische Landesbank, has been IRBA certified since 2007, and LBS Bayern aims to achieve supervisory recognition of the equity calculation based on IRBA. The KSA approach will be used in the meantime. "The data only has to be mapped once to use both approaches. That saves us a lot of time," says Oberberger.

Wolf is also satisfied. "With SAS we were able to implement the demands of the new regulatory requirements extremely efficiently within just nine months," she says. Oberberger adds: "We can now calculate how much equity needs to be reserved in KSA and in IRBA in a completely automated and reproducible manner, as well as meet the SolvV requirements, such as stress testing, for example."

Once LBS Bayern has satisfied legislative authorities, it plans to use the data, and other data as well, for internal reporting. Thus, they are planning to use their existing SAS tools to set up a reporting portal that provides the management and specialists with the information they need for controlling purposes.

The project

The product selection began in 2006, with implementation of the system beginning in January 2007. LBS' goal was to have the new systems in place by the end of September, in time to calculate the figures to be reported to the supervisory authorities.

"External consultants were very skeptical as to whether such a tight schedule could be kept. But we got it done on time and on budget," says Wolf.

What were the success factors of the project? Oberberger names several: "For one, the combination of internal and external employees should be named. For example, we really profited from the workshops that accompanied the project in regard to know-how transfer and customizing. Add to that the support from SAS partners during the implementation, especially in designing the interfaces to the data warehouse." Oberberger also said that the synthetic tests using fictional data and the final evaluation of the individual results were extremely helpful. All in all, LBS Bayern invested around 500 person days in the project.

The benefits

SolvV-conforming, reliable calculation of the equity to be reserved.

  • Automated calculation of the equity to be reserved.
  • Information is always current thanks to the key-date-specific data provision.
  • Meaningful, reliable and consistent result, scenario and ad-hoc analyses; stress testing.
  • High level of flexibility: Calculation possible using the standard credit risk approach (KSA), as well as the internal rating-based approach (IRBA) with simultaneous data mapping.
  • System can be expanded to include internal reporting.


Develop a new system for calculating regulatory equity.


SAS® Data Management


Basel II-conforming, automated calculation of the necessary equity reserve.

Bu makalede gösterilen sonuçlar, burada açıklanan belirli durumlara, iş modellerine, veri girdilerine ve hesaplama ortamlarına özeldir. Ticari ve teknik değişkenlere bağlı olarak, her bir SAS müşterisinin deneyimi kendine özgüdür ve hiçbir açıklama tipik olarak düşünülmemelidir. Gerçekleşen tasarruflar, sonuçlar ve performans özellikleri, bireysel müşteri konfigürasyonlarına ve koşullara göre değişiklik gösterecektir. SAS, her müşterinin benzer sonuçlara ulaşacağını garanti etmemekte veya bu konuda bir taahhütte bulunmamaktadır. SAS ürün ve hizmetlerine yönelik tek garanti, söz konusu ürün ve hizmetlere dair yazılı anlaşmada belirtilen açık garanti beyanlarında ifade edilen garantilerdir. Bu belgedeki hiçbir ifade, ek bir garanti teşkil ettiği yönünde yorumlanmayacaktır. Müşteriler, üzerinde anlaşılmış bir sözleşmeden doğan bir alış verişin bir parçası olarak ya da SAS yazılımının başarılı bir şekilde uygulanmasının ardından sunulan proje başarı özetinde, başarılarını SAS ile paylaşmışlardır. Marka ve ürün adları, söz konusu şirketlerin ticari markalarıdır.

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