INTRODUCTION
it is possible to break down the RWA of each G-SIFI into its constituent parts. This is referred to as granular decomposition. This involves splitting the RWA of an institution down into a list of different risk types. The sumed RWA for each list of risk types must equal the overall RWA of the institution. An example of an RWA decomposition is given in the toy data section.
There are two main levels of aggregation in this data set. At the most top level, there is RWA level for G-SIFI as a whole. This can be thought of as the market implied "cheap to replace" value of the G-SIFI in the case of a default.
RWA Coin is a generic term used by the banking sector to describe risk-weighted assets. There are different kinds of RWA coins, although the most relevant distinction is between real RWA coins as they are generated on the balance sheet and those that are the results of stress testing exercises. Here we focus on the former. BlackRock has documented RWA coins for the 31 European G-SIFIs using a uniform methodology for the purposes of internal RRP. Here we refer to this RWA coin data set with the tag "BlackRock RWA IHS Markit RRP data".
OVERVIEW OF RWA COINS
A series of coins created under the Basel framework and proposed CCAR for the analysis of regulatory capital relief under the advanced approaches. The original stated purpose of the coins was to avoid complexity in RWA analysis under both the Basel framework and the Federal Reserve's, given that there are several approaches to the calculation of RWA for a single risk (e.g. under the Basel framework, a BHC would calculate RWA with several different credit risk weights for a residential mortgage). It was recognized that the approach to assessing capital relief from RWA migrations due to credit risk exposure to various market instruments can become exceedingly complex since capital is calculated as a function of RWA, but the migration to an internal ratings approach for the calculation of credit risk can still transfer substantial capital relief to a BHC even though it increases RWA. This is all further complicated by the fact that there exist several potential scenarios under stressed economic conditions where a BHC would be forced to take a credit risk in order to provide liquidity. The coins have been divided into five different types where the first three would serve as an underline to understanding of RWA migration between different types of credit risk exposure for a given market instrument, and the subsequent two address two unique scenarios often faced by financial organizations.
IMPORTANCE OF BLACKROCK'S ACCUMULATION
BlackRock's transition from using Value at Risk (VaR) to Coinmetrics' derivative of RWA can be seen by the quantity, frequency, and quickness of their accumulation of RWA. Upon noticing Coin's release of RWA, BlackRock quickly and continuously obtained data and continued for some time. BlackRock's extensive and prolonged accumulation of RWA is a strong indication that they live and breathe the method. Because many individuals and entities in all sorts of financial markets often prefer to familiarize themselves with new concepts, theories, and products, there are only a select few that diligently do so. That select few who become experts are the ones that provide invaluable teaching of method, practice, and intimate understanding to others which leads to cultivation and progression of said theory or product. This is comparable to a professional of finance taking time to understand all implications and intricacies of a new and potentially beneficial regulatory requirement compared to an individual or entity who just fulfills the requirement without understanding its implications on their respective actions. The former in both cases is likely to increase the overall well-being and stability fostered by the concept or regulation.
The fact that BlackRock is the largest asset manager shows that it is possible for an unrelated entity to become an expert in a defined field and is relevant in understanding that RWA as a risk measure can be analyzed by an individual firm for a specific market or a large entity for overall risk. In the case of RWA's importance, such understanding can be the difference between a safer application of strategy and prevention of losses due to ignorance of incorrect assumptions of implied risk on one end, or increased avoidance of constrained strategies and resultant changes to market liquidity and supply of capital by completely eluding high RWA markets on the other. In the big picture, both can have large-scale macroeconomic effects.
In understanding the nature of BlackRock as a firm, RWA's relevance, and the general greater possibility of data analysis/search detailed in section RWA2: Continued Evolution of RWA, it is fair to assume BlackRock will likely be a continued topic of analysis by Coinmetrics in the context of RWA and potential effects. To ask if Coin will supply further RWA data specific to BlackRock or if BlackRock will find means to purchase data from Coin.
