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 […]
Fixing Broken Windows 4. Reducing Exposure To Investigations
“Staff training on policies and procedures is critical,” said Luke Cadigan, “to reduce exposure to insider trading investigations.” Cadigan, a partner in the Government Enforcement Group at law firm K&L Gates, was the final speaker in a four-part webinar on “Fixing Broken Windows” organized by GARP on March 11, 2014. Cadigan emphasized the message of the past three speakers, namely, that the Securities and Exchange Commission has become much more focussed on catching financial wrongdoing—from the lowest levels up. Investigations take time and effort and can be costly, thus, firms “want to convince the SEC staff there’s nothing there they […]
Fixing Broken Windows 3. Operation Perfect Hedge
The past seven years of Operation Perfect Hedge have been a “whirlwind,” said David Chaves, Securities Program Coordinator of the Federal Bureau of Investigation. He was the third speaker in the four-part webinar panel on March 11, 2014, “Fixing the Financial Industry’s Broken Windows,” sponsored by GARP. The undercover operation was born in 2007, amid the confluence of several factors that produced the financial crisis. At the time, there were a couple of “pump and dump” schemes but the FBI “couldn’t put anyone in,” Chaves said. Two individuals were identified by the Securities and Exchange Commission through market analysis. “Those […]
Fixing Broken Windows 2: How to be there when you’re not really there
“With only 4200 employees, the SEC must rely on force multipliers”, said Valerie Szczepanik, Assistant Director of the Asset Management Unit, Division of Enforcement, Securities and Exchange Commission. She was the second of four panellists at the GARP webinar “Fixing the Financial Industry’s Broken Windows” held on March 11, 2014. SEC Chair Mary Jo White has emphasized the SEC must be everywhere and appear to be everywhere, said Szczepanik, who outlined six factors helping the SEC carry out its mission in the face of increasing complexity in the financial world. The SEC is increasing its collaboration with other regulators and […]
Fixing Broken Windows 1. Game Changers and Whistleblowers
There is renewed focus on “pursuing small violations to prevent a culture where laws are not viewed as toothless guidelines,” said Amy Poster, Director for Risk and Regulatory Advisory Services at C & A Consulting LLC. She was the opening speaker in a four-part webinar panel titled “Fixing the Financial Industry’s Broken Windows” sponsored by GARP on March 11, 2014. Poster opened with a quote from a speech by Mary Jo White, Securities and Exchange Commission Chair: “The theory is that when a window is broken and someone fixes it – it is a sign that disorder will not be […]
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 […]
Stress Testing, Part 2: Data, the River
A common theme throughout contemporary financial stress testing is “data, the risky river,” said David O’Connell, Senior Analyst, Aite Group, a financial services consulting group. He was the second of two speakers to address issues around data in stress testing in a webinar organized by GARP on January 28, 2014. The recent financial crisis has permanently altered the relationship between the central bank and all other financial institutions, said O’Connell. The central bank is now looking at them as potential customers for a line of credit, and thus must carry out due diligence including asking for proof that the financial […]
Stress Testing, Part 1: The Data Mountain
Demands by regulators for increased frequency of reporting and more granularity of data in financial stress testing “are creating a data mountain,” said Jon Asprey, VP Strategic Consulting, Trillium Software. He was the first of two speakers to address the issue of data in stress testing in a webinar organized by the Global Association of Risk Professionals on January 28, 2014. He contrasted the new demands with early (pre-financial crisis) days of Basel reporting, when the summary level was sufficient. The data mountain has a significant impact on financial institutions, creating “the month-end panic,” Asprey said, since reporting at most […]
Eye on Credit Markets. Part 2: Spreads Hit Floor
“The central bank stimulus has been significant—what will happen as it’s withdrawn?” asked Seth Rooder, Global Credit Derivatives Product Manager at Bloomberg. He was the second of two speakers to consider the effects of tapering in a GARP webinar presentation on November 21, 2013. A key question is: “when will the Fed taper?” Rooder said not soon, because with unemployment still above 6.5 percent, Vice-Chair of the Fed Janet Yellen will have unwillingness to taper. Currently, the Fed is pumping money into the system by buying $40 billion in mortgage-backed securities and $45 billion in Treasury bills per month. He […]