Stress Testing: Part 1. Balance Numbers and Narrative
“Uncertainty is a fundamental part of business. Major shifts occur without warning, triggered by a single event, or combination of unrelated, contemporaneous events,” said Sanjiv Talwar, Managing Director, Risk Capital & Stress Testing at Bank of Montreal. He was addressing a webinar audience on May 7, 2013 as the first speaker in a panel organized by the Global Association of Risk Professionals (GARP). He summarized the categorization of uncertainty by Courtney et al. in “Strategy Under Uncertainty”, Harvard Business Review. There is a variety of tools available to help manage the uncertainty, Talwar noted: option evaluation, game theory, pattern recognition, […]
Monitoring Risk While Pursuing High Returns: The Importance of Being Quantitative
“A quantitative model provides a very different insight than a rating,” said Rajan Singenellore, Global Business Manager of Risk & Valuations at Bloomberg. Models are based on objective inputs and usually publicly available information, whereas ratings are based on subjective factors and inside information. Singenellore was speaking about quantitative models as the second part of a two-part webinar presentation “Monitoring Risk While Pursuing High Returns” on March 7, 2013 organized by the Global Association of Risk Professionals (GARP). “A quantitative model lets you understand risk drivers and sensitivities,” he said, such as the effects of input changes on default risk […]
The Fed, Foreign Banks and Basel III: Part 1. A Long Hard Look
Foreign banking operations (FBOs) in the United States are about to face a whole new set of regulations that may dampen their enthusiasm for US-based operations, according to a February 14, 2013 webinar organized by the Global Association of Risk Professionals (GARP). “The Fed observed over time that US branches were increasingly used to fund the home office operations,” said Charles Horn, partner at Morrison Foerster, who was the first speaker at the panel. Other concerns of the Federal Reserve Board are the increased complexity of FBOs, and “the availability of home country financial resources for branch offices.” The goal, […]
Libor Fallout: Part 3. A Muted Valuation Effect
On December 20, 2012, the third presenter at the GARP webinar on the LIBOR scandal was Robert Maxim, director of Complex Asset Solutions at Duff & Phelps. He spoke about the valuation implications of incorrect LIBOR rates. The cash flow of many financial instruments is indexed to LIBOR, he said, for big companies as well as small, and even for individual consumers such as those holding private student loans. Maxim considered an interest rate swap example in which the floating leg is tied to LIBOR. The valuation is always computed on the difference between the fixed and floating leg. “The […]
Libor Fallout: Part 2. Whistling Past the Graveyard
On December 20, 2012, the second presenter at the GARP webinar on the LIBOR scandal was Cliff Rossi, Executive-in-Residence, Center for Financial Policy, University of Maryland. He described the risk implications arising from the Wheatley Review of LIBOR. Rossi noted that some market participants were “still feeling PTSD from the financial crisis of 2008”—and then they got hit with the LIBOR scandal. Rossi succinctly described what went wrong: Low volume in interbank lending in unsecured transactions created an over-reliance on “expert judgement” hence the rate was subject to manipulation. Part of the problem, Rossi said, is that LIBOR reporting was […]
Implications of the Euro Zone Crisis
When it comes to financial debt in the Euro Zone, “deleveraging has barely begun,” said Daniel Wagner, author and risk consultant. “It’s a long and winding road.” On August 7, 2012, Daniel Wagner, CEO of Country Risk Solutions, a US-based cross-border risk management consulting firm, addressed a Global Association of Risk Professionals (GARP) audience about the Eurozone crisis. Wagner, author of Political Risk Insurance Guide, and Managing Country Risk, published in 2012, spoke on a range of related topics. Wagner’s talk was far-ranging and comprehensive (78 slides in 45 minutes). He spoke about the impact of debt: in particular, the effect […]
Ethics and Risk Management: Part 3
A panel of four specialists convened to discuss various aspects of ethics in risk management in a GARP-sponsored webinar on June 21, 2012. (Click for Part 1 and Part 2 of this summary.) The fourth and final speaker was Roger Miles, Director, NudgeGlobal. He spoke on risk control lessons learned from the banking crisis. In the financial sector, he said, “UK-enforced self-regulation was a good idea in theory.” A bank can realize an ever-increasing profit from a new, complex product, but the regulator has limited resources, therefore, there is an essential asymmetry of information that cannot be overcome. However, in […]
Zombie Banks Part 2. A Call for Change
Given the current high coolness quotient of anything “zombie,” a webinar about “zombie banks” is guaranteed to pique the interest of even the non-bankers out there. (Kudos to the non-financial types who made it through Part 1 and the discussion of interest rates.) But really, “zombie” is nothing more than a highly picturesque way to refer to something that is kept in motion or presumed viable long after it normally would have expired. “Zombie yogurt,” anyone?To recap Yalman Onaran’s definition in Part 1 of this posting, a zombie bank is a financial institution that continues to exist “even though the […]
Zombie Banks Part 1. Tough Love
George A. Romero, the moviemaker who popularized the witchcraft legend of the “walking undead,” would likely be astonished to hear the term applied to real financial institutions, but “Zombie banks” does capture the concept well. On June 5, 2012, Yalman Onaran, author of “Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy,” and financial reporter at Bloomberg News, spoke at a panel convened by GARP (Global Association of Risk Professionals) to discuss the phenomenon of banks which exist to fulfill a regulatory purpose but are not in themselves economically viable. Onaran said the first response to […]
Reality vs Expectations: What Risk Managers Can Learn from the NFL
Arriving a little late at the CFA Society Toronto luncheon on June 4, 2012 at the National Club on Bay Street, I had a lucky choice of seat at the “hodge podge” table near the back. My two nearest neighbours at the table had driven from Simcoe to Toronto that morning (a minimum two-hour trip) for the express purpose of meeting the featured speaker, Roger Martin, Dean of Rotman School of Management. One said he had not only read and enjoyed Martin’s latest book, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL, he had also […]