Counterparty Credit Risk 3. Modelling
“Counterparty credit risk is particularly difficult” to model due to its “bilateral nature” and the fact it often covers more than one year, said Rajan Singenellore, Global Head of the Default Risk and Valuation Group at Bloomberg. He was the third of three presenters at a GARP webinar on counterparty risk held on May 20, 2014. Singenellore divided the challenges to modelling counterparty risk into three categories. The first, the counterparty’s probability of default (PD), depends on multiple factors and requires estimates of recovery. The second category is how to estimate the future value of securities, which depends on the […]
Counterparty Credit Risk 2. The Good, the Bad, the Ugly, and the Unseen
“Data and its accuracy are key to making this work,” said Robert Scanlon, referring to counterparty credit risk. Scanlon is the former Group Chief Credit Officer of Standard Chartered Bank and current Principal, Scanlon Associates. As the second of three speakers at a GARP webinar on counterparty risk held on May 20, 2014, Scanlon spoke from years of experience with risk practices. First, the good part of calculating counterparty credit risk. Scanlon said there is plenty of data already, especially for consumer/retail transactions. “You can start with a steady state assumption and get more data as time goes on. Ask […]
Counterparty Credit Risk 1. Regulatory Landscape
“Things got out of control very quickly” during the collapse of Lehman Brothers, said Cady North, Senior Finance Analyst for Bloomberg Government, as she compared counterparty credit risk analysis before and after Dodd-Frank legislation was enacted. North was the first of three speakers at a webinar held on May 20, 2014, sponsored by the Global Association of Risk Professionals. The webinar attracted a record number of registrants. Prior to the financial crisis of 2007, “no regulatory reporting was going on for counterparty risk on a regular basis,” North said. There was lack of a common legal entity identifier for Lehman […]
A Day in the Life: Risk Managers
Financial risk management is a stimulating and worthwhile livelihood, according to four panellists who convened on May 14, 2014, to describe their careers in the industry. A rainy afternoon did not discourage an audience of about sixty risk professionals and students from attending the meeting of the Toronto Chapter of the Global Association of Risk Professionals which was held in the new KPMG offices on Bay Street. Xiaobo Wang, Director of Credit Risk Audit at Scotiabank, acted as the evening’s moderator. He posed several questions to four panellists: the nature of their work, what is a “typical day,” and how […]
Model Risk 2. Look Beyond the Numbers
What does the near-disaster on London’s Millennium Bridge have to teach us about model risk? “The bridge, inaugurated with great fanfare by the Queen in 2000, filled with people and began to sway so strongly it had to be immediately shut down,” said Ravi Chari, Manager, Americas Risk Practice at the SAS Institute. “When the bridge was modelled during development, the developers did pose the question ‘what is the probability of 10,000 people walking in unison on the bridge?’ And the answer was ‘practically zero’—but that’s exactly what happened on Day One!” Chari was the second of two speakers on […]
Model Risk 1. After the Crisis
The potential sources of error in constructing a model “is the key point in determining how to handle model risk,” said Suresh Gopalakrishnan, Principal, Business Information Management, at Capgemini Financial Services. He was the first of two speakers on the topic of model risk management (MRM) in the post-financial crisis regulatory regime, and was speaking at a webinar organized by the Global Association of Risk Professionals on April 24, 2014. Model risk is very wide-ranging. “What about inadequacies in models?” he asked. “Do they cover black swan events? What about aggregate risk? Is model risk in fact part of operational […]
OTC Market 2. A New Paradigm
“How will errors be handled? That’s the biggest area of discussion with SEFs,” said Bis Chatterjee, Global Head of E-Trading and New Business Development, Credit Markets, at Citigroup Global. SEF refers to a Swap Execution Facility. He was the second of two speakers at a GARP-sponsored webinar, about changes to the over-the-counter (OTC) credit default swaps (CDS) market, held on April 15, 2014. “The market had less time than it would have liked to review various rules of the new guideline,” Chatterjee said, referring to the flurry of market response to the new regulations brought in by the US Commodities Futures […]
OTC Market 1. “It was a busy 15 months…”
Over the past fifteen months, “the biggest paradigm shift that we’ve seen in the last twenty years” has occurred, said Nathan Jenner, Chief Operating Officer at Bloomberg Electronic Trading. He was the first of two speakers at a GARP-sponsored webinar, held on April 15, 2014, about changes to the over-the-counter (OTC) market. Jenner put the changes in context: the new legislation driving the changes arose from the 2009 G20 summit in Pittsburgh that occurred on the heels of the 2008 financial crisis. There were three areas the signatory nations wanted to focus on, he said: “reducing systemic risk, improving transparency, […]
Risk Volunteers: Two Profiles
While attending the Toronto chapter of the Global Association of Risk Professionals meetings, we at TextMedic notice a few dedicated volunteers doing everything from handing out name badges to introducing guest speakers. Of course, that’s just the tip of the iceberg—these folks also do a lot of unseen labour such as holding organizational meetings and composing e-mail broadcasts and twisting arms of reticent (and busy) subject matter experts. Thanks to the local chapter, TextMedic has reported in the past on live events about things like pension plan risk, a low volatility equity strategy, and risk data aggregation and reporting. Since National […]
A Successful Operational Risk Program 2. Purpose
“The purpose of the framework is to provide business value,” said Philippa Girling, Commercial Business Chief Risk Officer at Capital One and author of Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework. She was the second of two presenters at a GARP-sponsored webinar on April 8, 2014 that attracted about 2,000 registrants. “Good governance drives good behaviour,” said Girling, noting that the standards of Basel II have now become the de facto standard. Operational risk is “about anything that can go wrong” that’s not market or credit risk. “People make mistakes, systems fail, policies fail” plus […]