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 […]
Tracking the Elusive Black Swan
Enterprise risk management (ERM) requires a “robust framework design and collaborative approach to capture a black swan event before its occurrence,” said Brenda Boultwood, Senior Vice President of Industry Solutions at MetricStream. She was the second of two speakers at the GARP-sponsored webinar on Black Swans and Reputational Risk held on August 26, 2014. Black swan events are “close to impossible to estimate impact and likelihood,” such as the Japan 2011 tsunami, or Hurricane Katrina. The complexity of these types of risk “requires that we focus on what is most important” in strategic risk management, said Boultwood, naming four principal areas: […]
“They Kill Things!”
Enterprise risk management (ERM) should aim to fill the strategic advisor role, which is the most valuable role, said Jim Fitzmaurice, Executive Advisor at Corporate Executive Board (CEB), because “the strategic advisor focuses on improving risk-informed strategic decisions.” Fitzmaurice, who advises both CEB Audit Leadership Council and CEB Risk Management Leadership Council, was the first of two speakers at the August 26, 2014 webinar on Black Swans and Reputational Risk sponsored by the Global Association of Risk Professionals. Fitzmaurice began by showing how the evolution of ERM has been a progression in the prominence of its role and a concomitant […]
Risk Units & Risk Accounting
“In the absence of a standardized and universally accepted method of calculating exposure to risk, are accuracy, integrity and timeliness achievable?” asked Peter Hughes, Managing Director, Financial InterGroup (UK). He was the fourth of four panellists to present at the GARP webinar on risk data aggregation held July 22, 2014. Hughes was speaking with reference to the Basel Committee on Banking Supervision (BCBS) article 239, which spells out principles of accuracy, integrity, and timeliness for risk data. There’s a mixed bag of methods used to identify and quantify exposure to risk, Hughes noted. Quantitative modelling, accounting methods, key risk indicators, […]
Where is the Common Thread?
Thanks to “Rube Goldberg infrastructure” and a lack of attention, banks “have been mixing together data that have no common thread,” said Allan D. Grody, founder of Financial InterGroup Holdings. “Now is our chance to fix the plumbing.” Grody was the third of four panellists to address the July 22, 2014 GARP webinar on changes to risk data aggregation and reporting. His talk continued a theme of improved risk data management that he has spoken about before to GARP audiences. The “astonishing” aftermath of the 2008 Lehman fiasco—where banks were scrambling to determine exposure to a bankrupt counterparty—“has become the […]
Swap Data Reporting
One of the primary purposes of swap data reporting, as explained by James Schwartz, Counsel at Morrison & Foerster LLP, is to permit regulators to identify the swap exposures of market participants—which they found themselves unable to do during the financial crisis. Schwartz spoke as part of a four-person panel on challenges to risk data aggregation, reporting and recordkeeping organized by GARP on July 22, 2014. Schwartz gave an overview of the US swap data reporting requirements under the Dodd-Frank Act. “It’s important to note timing,” he said with regard to U.S. Commodity Futures Trading Commission (CFTC) regulations and Basel […]
Challenges to Risk Data Aggregation: Overview
Will financial institutions be able to respond to new challenges of risk data aggregation, reporting and record-keeping? Peter J. Green, Partner of Morrison & Foerster LLP, opened the four-panellist webinar organized by GARP on July 22, 2014, to discuss new risk data aggregation, risk reporting and recordkeeping principles. He indicated that the recent financial crisis had caused regulators to see many gaps in risk reporting and aggregation due to deficiencies in banks’ IT and data architecture. The Financial Stability Board (FSB) gave a mandate to the Basel Committee on Banking Supervision (BCBS) “to develop principles for effective risk data aggregation […]
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. […]