Stress Testing Mortgages. Part 1
“One needs to be careful and not over-reliant on any one model,” said Scott L. Smith, Associate Director for Capital Policy at the Federal Housing Finance Agency (FHFA). He was referring to the financial models used by major financial institutions to estimate potential losses. On February 4, 2015, he was presenting a GARP-sponsored webinar on countercyclical stress tests to set capital requirements. Smith explained how credit risk is measured for mortgages, and described a way to embed stress testing that uses countercyclical concepts. He and colleague Jesse Weiher, Senior Economist at FHFA, performed dynamic stress testing that was adjusted to […]
Cyber Risks: “the New Normal”
“We are living in the middle of a cyber war,” said Christophe LeSieur, Global Practice Lead of Governance, Risk & Compliance (GRC) at CSC. He was the first of two presenters at a webinar on cybersecurity sponsored by the Global Association of Risk Professionals held on December 16, 2014. He described “the new normal” as “an environment of unprecedented tension” whose mega-trends are: social media, information technology (IT) and internet everywhere, proliferating platforms (mobile, bring your own device[BYOD]), and a huge quantity of data. The world is becoming ever more different, and the number of attacks is growing. Just this […]
When Data Is Sparse. Part 2
It’s difficult to model sovereign credit risk for emerging markets using structural models such as the Merton model because “calibration is always an issue,” said Rob Stamicar, Senior Director of Research in Multi-Asset Class Risk Management at Axioma, continuing a theme during the second half of his webinar on December 2, 2014. During the first half, he showed how the probability of default can be used as a common link among the asset classes of interest (bonds, swaps, and equities). In the second half, he focused more on sovereign credit risk. Calculation of sovereign risk could be done directly, “but […]
When Data Is Sparse. Part 1
When modelling risk in emerging markets, are you hampered by sparse data? “Relationships between different asset classes can help measure the sovereign risk in emerging markets,” said Rob Stamicar, Senior Director of Research in Multi-Asset Class Risk Management at Axioma. He was sole presenter at a webinar on December 2, 2014, sponsored by the Global Association of Risk Professionals. When modelling global multi-asset class portfolios, “aggregation can be challenging,” said Stamicar, because the FX rates must also be taken into consideration—the subject for another day. His talk focussed on three asset classes: equity, fixed income, and credit portfolios. Infrequent data, […]
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 […]
SM 4. A Way Of Sparking Conversations
Over the past six years, Jaime Widder, Sales Manager at Bloomberg LP, has seen an evolution in his clients with respect to the data they seek from social media. “At first, they just wanted to look at social media information on clients. Now, portfolio managers want to know how to list securities and track social velocity.” Widder was the fourth panellist (of four) to address the topic “The Impact of Social Media on the Investment Process” at a CFA Toronto Society gathering held in the gallery of the TMX Broadcast Centre on the evening of May 21, 2014. For clients who […]
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 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 […]
Commercial Credit Analytics 2: A Missed Opportunity
Many banks are wasting the loans data they capture, according to David O’Connell, Senior Analyst, Aite Group, a financial services consulting group. This posting summarizes the second half of his webinar organized by the Global Association of Risk Professionals on February 20, 2014. O’Connell contrasted marketing teams with underwriting teams. Marketing teams use predictive analytics to decide which customers are most likely to respond to certain campaigns. They are very forward-thinking in devising the “customer next best action,” he said. O’Connell encouraged the credit and underwriting teams to have a similar outlook—to also make use of predictive analytics to determine “borrower […]
Commercial Credit Analytics 1: Under-utilized Tools
“There is a surprising under-utilization of common tools,” said David O’Connell, Senior Analyst, Aite Group, a financial services consulting group, during a webinar organized by the Global Association of Risk Professionals on February 20, 2014. He was referring to a survey by Aite Group of about twenty North American commercial loan underwriting professionals (responses as at quarter end Q3 2012). O’Connell characterized the under-utilization as “surprising” because loan underwriting is such an important part of banking. O’Connell was formerly a loan underwriting and loans officer, and was clearly familiar with the details of commercial lending and its role in “Banking […]