“Lending Will Be Marketing Gimmick”
What will be the effect of Basel III on banks in emerging markets? “Commercial banks will become less interested in providing loans,” said Dr. Michael C. S. Wong, the first panellist in a webinar on Banking in Emerging Markets held November 20, 2014, and sponsored by the Global Association of Risk Professionals. He is Associate Professor of Finance at City University of Hong Kong, and Chairman at CTRISKS Rating. Wong summarized the challenges of the new Basel III regulatory regime, with its tougher capitalization and liquidity requirements. A global systemically important bank (G-SIB) will have additional capital and cash-holding requirements, he said, […]
Basel III Standardized: the Holistic Approach
“Banks need technology to help with Basel IIII compliance because moving from Basel I to Basel III is a quantum jump,” said Tom Kimner, Head of Americas Risk Practice at SAS Institute. He was the second of two panellists at a webinar held on September 16, 2014, organized by the Global Association of Risk Professionals to discuss the Basel III Standardized Approach for mid-tier banks. Kimner began by outlining five key issues to Basel III compliance: Data Structure and Validation – The data on credit exposures necessary for capital calculations needs to be cleaned and transformed. “An entire body of work […]
Basel III Standardized: Avoid the Showstopper
“If you can’t comply, it could be a showstopper,” said Henry Fields, Partner at Morrison & Foerster LLP, who was the first of two panellists at a webinar held on September 16, 2014, organized by the Global Association of Risk Professionals. The purpose of the webinar was to discuss the Basel III Standardized Approach for mid-tier banks (assets of over $500 million), and Fields began by giving an overview. The potential “showstopper” would be non-compliance with the new rules for risk weights for assets that are scheduled to come into effect January 1, 2015. “When the Fed issued the [new] […]
DFAST 2. Challenges of Modeling Credit Risk
There are multiple challenges to private firm commercial & industrial (C&I) risk management, according to Mehna Raissi, Director, Enterprise Risk Solutions at Moody’s Analytics. She was the second of two speakers at a GARP-sponsored webinar on September 9, 2014, to address the Dodd-Frank Act Stress Test (DFAST). Successful risk management depends on three things: the potential for error within standardized processes; ongoing monitoring of counterparty credit risk; and the efficacy of credit risk models. A very big challenge is data quality and availability. “What are the types of variables and factors needed?” Raissi asked. “How can we take into consideration […]
DFAST 1. Modeling Losses and Provisions Over Time
Although Dodd-Frank Act Stress Testing (DFAST) requirements may be the primary motivation for bringing stress testing to the forefront, they should not be the only reason a bank explores the components of loan loss forecasting under a stressed scenario, said Chris Henkel, Senior Director, Enterprise Risk Solutions at Moody’s Analytics. He was the first of two panelists at a webinar held on September 9, 2014, sponsored by the Global Association of Risk Professionals. An accurate forecast of charge-offs is crucial, Henkel said, so that a firm “can estimate what allowances should be and how large the provisions should be,” thereby […]
Risk Ratings 2. “Hundreds of Spreadsheets”
“There were hundreds of different spreadsheet templates floating around,” said Christopher Hansert, Product Manager at Bosch Software Innovations, and the second of two presenters at a GARP webinar on the impact of new capital rules on risk ratings, held June 24, 2014. He presented a case study of an unnamed US commercial bank. Due to an acquisition during the period of regulatory change, he said that the bank had a “heterogeneous set of platforms, models, and inconsistent ratings. They wanted one robust and centralized” risk rating system. Inconsistencies in the risk rating process increased the likelihood of error, Hansert pointed […]
Risk Ratings 1. The Big Choke Points
“The inter-connectedness of the regulatory landscape has increased dramatically,” said Balachander Lakshmanan, Director at Deloitte & Touche LLP. He was the first of two presenters at the June 24, 2014, webinar sponsored by the Global Association of Risk Professionals to discuss the impact of capital rules on risk rating systems. In the wake of the financial crisis, new regulations—Basel, Volcker rule, Comprehensive Capital Analysis and Review (CCAR)—have proliferated. Due to changes in capital rules, new operating models are starting to emerge at banks, said Lakshmanan. There are requests for “spot calculations” or snapshots of a bank at any given time. […]
SM 3. Keep Pace with Customers
“I work for a company with positive social capital,” said Kavita Joshi, Associate Vice President, Social Media at TD Bank Group. She was the third of four panellists at a CFA Toronto Society gathering titled “The Impact of Social Media on the Investment Process” held in the gallery of the TMX Broadcast Centre on the evening of May 21, 2014. “Social media means we are trying to keep pace, not with our competitors, but with our customers,” Joshi said. “We’ve realized there’s a real shift in terms of responsiveness.” The entry point to social media is around customer service, advised […]
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 […]