Trends, Challenges & Focus Areas in Banking RiskManagement  A Presentation by TATA Consultancy ServicesSeptember 24th , 20...
Risk – Trends, Regulations & Challengesalways changing, always expanding
T20 - Global Risk Trends, Challenges,                 RegulationsCredit Concentration Risk     1                          ...
Basel IIIlearning from the shortcomings..time will decide
Basel III Overview            Pillar 1 - Minimum Capital Requirements                    Pillar 2 SREP                    ...
Basel III Overview    Business &                                     Data &                                       Technolo...
Liquidity Risk Managementnever given importance, now it is of prime focus
LRM - Genesis In 2008 & 2009, BCBS published “Principles for Sound Liquidity Risk Management & Supervision”,  FSA LRM rul...
LRM Maturity Grid High                                                                                 Risk Appetite @    ...
Integration of Risksuniquely identify risk contribution
Integration of Risks for Enterprise Wide ViewTreasury & Capital                                Market Risk Engine     Mark...
Governance, Risk & Compliance (GRC)for strategic decisions & actionable steps
GRC & Performance Conundrum               Investors, Board Members, Risk Managers, GovernanceStakeholders   and Compliance...
Governance Risk & Compliance - Components                                  Technology                  GRC      Business S...
Enterprise Risk Management (ERM)a culture, a philosophy an amalgamation of concepts
ERM Future State - Business ArchitectureRisk Context                                                                      ...
Data Managementsingle point of truth
Enterprise Information Platform – Single Point      Of Truth    Data Sources                    Consumers                 ...
Thank YouCopyright © 2011 Tata Consultancy ServicesLimited                                             19
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Infovision 2011, BFSI Risk Management, AN Jayaraman and Zeeshan Rahseed, TCS

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Infovision 2011, BFSI Risk Management, AN Jayaraman and Zeeshan Rahseed, TCS

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Infovision 2011, BFSI Risk Management, AN Jayaraman and Zeeshan Rahseed, TCS

  1. 1. Trends, Challenges & Focus Areas in Banking RiskManagement A Presentation by TATA Consultancy ServicesSeptember 24th , 2011Copyright © 2011 Tata Consultancy ServicesLimited 1
  2. 2. Risk – Trends, Regulations & Challengesalways changing, always expanding
  3. 3. T20 - Global Risk Trends, Challenges, RegulationsCredit Concentration Risk 1 12 Enterprise Risk ManagementCredit Risk KPI /Dashboard 2 13 Risk Appetite Framework Operational Risk ComponentsCounterparty Credit Risk 3 14 IntegrationRisk Platform AssuranceAutomation 4 15 Basel - IFRS SynergyLiquidity Risk 5 16 New Risk methodologies RegulationsStress Testing, RAPM 6 17 Risk and Fraud AnalyticsGovernance, Risk Compliance 7 Dodd Frank Act 18Integrated Data Management 8 Basel III 19Distressed/Special Assets Living Wills 20Management 9Country Risk 10Integrating Risks 11 3
  4. 4. Basel IIIlearning from the shortcomings..time will decide
  5. 5. Basel III Overview Pillar 1 - Minimum Capital Requirements Pillar 2 SREP & ICAAP Stress Testing, Liquidity Model Capital Stressed Coverage Securitization Validation, Definition Inputs for risk Ratio Exposures Back testing (Tier 1, 2) models Leverage Net Stable RatioCapital Ratios External Credit Value Funding Ratio Credit Ratings Adjustment Capital Capital Stressed VaR, Wrong Way Liquidity Buffers , Deductions IRC Risk Monitoring Global SIFI & Metrics Local SIFI Pillar 1 & 3 - Disclosures Risk Policy, Risk Governance 5
  6. 6. Basel III Overview Business & Data & Technology & Balance Processes Pillar 2 SERP Infrastructure Sheet1 - Minimum Capital Requirements Pillar & ICAAP Capital Liquidity Stress Testing, Capital Market Risk Counterparty Liquidity Model Credit Risk Coverage Validation, Ratio Back testing Capital Stressed Securitization Leverage Definition Inputs for risk Net Stable Exposures Ratio* (Tier 1, 2) models • LRM & Funding Ratio Stressed • Change in the • LRM , CVA will also External VaR Credit Value , CVA will needCapital Ratios , business balance Adjustment Credit Ratings (CVA) require additional Capital huge amountLiquidity of Buffers , sheet & product mix Higher Capital Monitoring investments & Global SIFI in Charge additional clean for Metrics Local SIFI • Buffers will affect VaR, Capital Deductions Stressed IRC Specific Technology and wrong wayhistorical data on an the profitability risk Infrastructure enterprise wide level Pillar 1 & 3 - Disclosures Risk Policy, Risk Governance 6
  7. 7. Liquidity Risk Managementnever given importance, now it is of prime focus
  8. 8. LRM - Genesis In 2008 & 2009, BCBS published “Principles for Sound Liquidity Risk Management & Supervision”, FSA LRM rules Require all banks to significantly enhance their liquidity risk infrastructure & functionality in providing granular liquidity-related data, in-depth analysis & reporting Strong Governance Model BCBS Liquidity Implementation Observation Reporting LRM Papers 2008 - 2010 2011 - 2012 2013 - 2015 2015 - 2018 8
  9. 9. LRM Maturity Grid High Risk Appetite @ Board Level Strategic Basel Contingency Planning III Board Stress Testing ofControl/Complexity Behavioral Analysis Directors Tactical Concentration Risk ALCO/ LRM Committee Sensitivity Analysis LRM Head Structural Liquidity Risk Operational Management Integrated Gap Analysis SBU/LOBs Tactical Liquidity Risk Management Duration Gap Analysis Cash Flow Gap Analysis Geo HOsLow Passive Management Style Active Governance Regulation Technology 9
  10. 10. Integration of Risksuniquely identify risk contribution
  11. 11. Integration of Risks for Enterprise Wide ViewTreasury & Capital Market Risk Engine Markets Market Risk Add-on Reporting Cubes Scenarios Hierarchy Positions VaR Business lines Source System PnL Time series Limits Position Regions 1 VaR Limits Traded Data Valuations products (Enriched) M Data VaRSource System ..n Data Common Services Simulation Stress Scenario Engine Testing Generator Loan Credit Risk &Commercial Reporting Cubes Loan & Credit Risk Engine Commercial Currencies products Limits Exposure Ratings Source System Risk 1 (Enriched) LGD Portfolio Mitigants Data Maturity EADSource System ..n PD and Risk Facilities/ Modelling RaRoc Limits 11
  12. 12. Governance, Risk & Compliance (GRC)for strategic decisions & actionable steps
  13. 13. GRC & Performance Conundrum Investors, Board Members, Risk Managers, GovernanceStakeholders and Compliance, Officers, Regulators, Customers, Customers’ Customers, Suppliers, Suppliers’ Suppliers, Larger Public Organization 13
  14. 14. Governance Risk & Compliance - Components Technology GRC Business Systems GRC Controls Enablers Components Governance Reports •Corporate Governance • Market Risk Compliance Reports • Credit Risk •Enterprise Integration • Sox •Governance • Operation Risk • SEC, FINRA •ETL •Risk • Fed/OCC, FSAs • Compliance • Basel II • Trading •Work Flow •Compliance • Legal • Regulatory • Insurance • Document Mgmt • KYC •Audit • Capital Mgmt •Data warehouse •Loss management Risk Reports • Legal • Regulatory • Sales •Reporting •Event management • Internal • Ethics Metrics & Trends • Business continuity • Information Mgmt Dashboards & Alerts • OthersSilo level Enterprise level Enterprise level Enterprise level 14 - 14 -
  15. 15. Enterprise Risk Management (ERM)a culture, a philosophy an amalgamation of concepts
  16. 16. ERM Future State - Business ArchitectureRisk Context 3 Assets 2 Business Units Trading Book Trading Book 1 Capital Markets Banking Book (On Balance, (Off Balance, 4 Risk Policy Client Specific) Proprietary) Business Strategy, Retail/Consumer Special Assets Objectives, Goals Risk Governance Support Commercial Business Processes New Product Functions (HR, IT, Legal, Credit Origination Introduction 5 Risk Culture Securitisation Trading Risk Appetite Marketing) Corporate Finance Structured Finance 8 7 Risk Quantification 9 6 Risk Capital Planning/ Projection Risk Modelling Retail New VaR Netting Identification Assessment Segmentation methodologies Capital Projection of Deposit Netting Projections Delinquencies, Qualitative PD, LGD, (IDNA),Financial Risks CCF/EAD, VaR, Integration of RCSA, IFRS Loan expected loss - Credit, Scoring KRI & Loss Data Derivative Netting AMA (PE, LGE) Loss Market, Repo Netting Provisioning Operational Risk Capital Calculations Prioritisation Mitigants Guarantees Risk Based Performance Measures Non-financial Regulatory Economic Collateralsrisks (Strategic, Leverage Ratio Insurance Hedge RAPM, Earnings at 10 Reputational) Material Risks RAROC Risk Pillar II Risks 11 (Liquidity, Risk Monitoring & ControlConcentration, Risk Based Risk Appetite, Risk Based Internal Validation of Internal Stress Testing & IRRBB) Supervision Back Testing Tolerance, Limits, KPI Audit Model Scenario Analysis (Regulator) BI/Reporting 12 Disclosures/Reports External Reports Internal Reports Quantitative (COREP, Qualitative (Risk Policy, Living Wills MIS Risk KPI Dashboard Audit FFIEC) Governance) 16
  17. 17. Data Managementsingle point of truth
  18. 18. Enterprise Information Platform – Single Point Of Truth Data Sources Consumers Functional Areas Basel II Compliance Risk Analytics Customers Stressed Assets Loans & Leases Finance Equity DWH MIS (Portfolio/Risk) Traded F&A (US GAAP/IFRS) Securitization Risk Mitigants Business Performance Portfolio Reporting (OCC, OFAC) Monitoring ALM Enabling integrated view of customers, assets & liabilities 18
  19. 19. Thank YouCopyright © 2011 Tata Consultancy ServicesLimited 19

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