Cordex India - SAS Forum India: Loss Data Consortium

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An exclusive presentation by Mr. S Rajendran, CEO – Cordex India on ‘Loss data Consortium’ The presentation was made at SAS Forum India 2013.

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Cordex India - SAS Forum India: Loss Data Consortium

  1. 1. Loss Data ConsortiumName S.RAJENDRANChief ExecutiveCordex India
  2. 2. Agenda Indian Scenario in Oprisk Management RBI guidelines on Usage of External Data External Data availability About Cordex India Reports to Members Usage of Reports Data of other ExchangesCopyright © 2013 , SAS Institute Inc. All rights reserved.
  3. 3. Indian Scenario of OpRisk Management Banks are in the process of setting up Policy, System, procedure on OpRisk Management Process of RCSA and KRI identification in nascent stage in many Banks Data collection is manual and still not reconciled to the accounting solutions RBI has notified guide lines for AMA Data for many ORC not available Updating of Skills requiredCopyright © 2013 , SAS Institute Inc. All rights reserved.
  4. 4. Challenges of Indian Banks Ensuring completeness of Operational Events Loss Data and capturing from the System Setting relation of KRI to Loss data Aggregation of KRI and RCSA for VaR calculation Creating Scenarios and Modeling of Risk Developing Documentation in OpRisk identification, measurement and Management Pooled Data not in place for Indian Events Estimation of Correlation among the loss events Management support and Creating awarenessCopyright © 2013 , SAS Institute Inc. All rights reserved.
  5. 5. Challenges of Indian Banks- Data collection Lack Common and Standard interpretation: • Allocation of Losses to multiple business lines • Boundary issues interpretation of OR event in − Credit Risk − Market Risk • Legal Risk reporting • Defining threshold and Large loss events • Grouping of Losses of Connected events • Dates on which OR losses to be captured • Rapid recovery clarification and uniformity • Treatment of uncollected Revenue as lossCopyright © 2013 , SAS Institute Inc. All rights reserved.
  6. 6. RBI Guideline on Usage of External Loss Data Banks to have a systematic and robust process for Collecting, assessing and incorporating relevant external data into the ORMS Determining situation for which relevant external loss data should be used Determining the methodologies used to incorporate the data(e.g scaling, qualitative assessment or enhancing scenario analysis) Relevant external data should include data on actual loss amounts, information on the scale of business operations where the event occurred, information on the causes and circumstances of the loss events, A bank should ensure that the external data used is appropriate, not affected by reporting bias, and relevant to the business and operational risk profile of the Bank.Copyright © 2013 , SAS Institute Inc. All rights reserved.
  7. 7. Availability of External Loss Data today External Loss data of Indian Banks not available today Some Vendors and Institutions have set up data pooling arrangements for Banks on a global basis from Public data/report from Banks Scaling the Data, relevance, quality and uniformity in reporting are issues need to be addressed before usage Satisfying the Regulator will be challengeCopyright © 2013 , SAS Institute Inc. All rights reserved.
  8. 8. About Cordex India Organisation Governance Systems and Process Members ReportsCopyright © 2013 , SAS Institute Inc. All rights reserved.
  9. 9. About Cordex India- Organisation Data Consortium promoted by 14 Public and Private Banks Registered as a Private Company under the Companies Act To set up Data pool for OR and Credit Risk A deemed Government Company and subject to Audit by CAG All members have equal share holdingCopyright © 2013 , SAS Institute Inc. All rights reserved.
  10. 10. About Cordex India- Governance Governed by Board where all members have nominee Directors. IBA has one nominee director. • All policy decisions and guidance by Board- Committee of Banks for guidance – Regular meeting with OR heads Methodology committee for all matters relating to Risk • Recommend Standards, Data template, Reports etc Technology Committee on Systems and process • To oversee systems setup and Security Internal committee on Data assurance and Quality checkCopyright © 2013 , SAS Institute Inc. All rights reserved.
  11. 11. About Cordex India- Systems and Processes Setting a state of Art systems for Data warehousing Usage of SAS analytics and BI solutions for oprisk. Secured access by Members –MPLS/Lease line Ensuring confidentiality of Data by appropriate IT policy and anonymising data Setting up Standards for Reporting to arrive uniformity of Data Segregated Data collection in OR and OpRisk related events in Credit for capital provision and control Descriptive detail of loss collected- to help in KRI/RCSA bench marking Large loss analysisCopyright © 2013 , SAS Institute Inc. All rights reserved.
  12. 12. About Cordex India- Shareholder- Members Andhra Bank Indian Overseas Bank Oriental Bank of Commerce Bank of Baroda Bank of India Punjab National Bank Canara Bank Syndicate Bank Central Bank of India State Bank of India ICICI Bank Union Bank of India IDBI Bank Vijaya Bank New non promoter Members are expected to join to comply with their need for AMA requirementsCopyright © 2013 , SAS Institute Inc. All rights reserved.
  13. 13. Cordex- Process Data validation Member Banks Users and Quality check 3 F Data I Member Banks Upload Users Formats R 2 SAS Server 4 Op Risk Data 1 W Staging Reports A Member Banks Users L Web Application Server L 5 Member Banks Users IBA Loss Data 1. User upload data in specified formats via OpRisk interface Database 2. Respective data is stored in respective staging database 3. Business Validations are applied via the SAS Server. 4. Accepted Records are loaded into IBA Loss Data Database and rejected records are written back to respective Staging database and notification is raised to respective users for re-uploading the rejected records. 5. Reports are created from DPC Loss Data database and which are published using Web Application ServerCopyright © 2013 , SAS Institute Inc. All rights reserved.
  14. 14. Cordex- Reports Analysis report will include the requirements under AMA guidelines of RBI- such as 1. Summary - Business line wise and Event type wise up to level II 2. Trends analysis 3. Causes analysis 4. Geographical classification up to district level 5. Peer bank comparison and bench marking 6. Frequency and Severity analysis with distribution 7. OCR level VaR and aggregated VaR 8. Data for analysing and benchmarking KRI and RCSA 9. Recovery analysisCopyright © 2013 , SAS Institute Inc. All rights reserved.
  15. 15. Usage of Cordex Data Enable to Prioritize the Risks to be Managed • Helps Management to focus on actual events particularly high severity and high frequency Application for RCSA/KRI • To Generate new risk profile and KRI • Can be used as a reference data for RCSA Assessment Application for Scenarios • Data source to assessors for assessing scenarios Application for Validation Application for Capital(VaR) MeasurementCopyright © 2013 , SAS Institute Inc. All rights reserved.
  16. 16. Application for Validation Validate RCSA performance result by comparing internal Impact evaluation result with Cordex Data KRI validation by Comparing with Trend and Regression analysis of Cordex –whether KRI reflects actual loss status Validation of Capital VaR measurement result by comparing and analyzing effects of distribution of each cell of Cordex loss dataCopyright © 2013 , SAS Institute Inc. All rights reserved.
  17. 17. Application for Capital (VaR) Measurement Source Data LDA Modeling Data Augmentation Aggregation of VaR of each Cell Internal Loss Data Parameter & Distribution External Loss Data Loss Distribution & Consortium Loss Distribution & Parameter Data Parameter Combine (CORDEX) based on Event Event Event Parameter & Bayesian Type1 Type2 Type7 Distribution theory Dept.1 Public Data Dept.2 Dept.3 Scenario Parameter & Dept.8 Analysis Distribution Aggregation Biz. Environment & Internal Control FactorsCopyright © 2013 , SAS Institute Inc. All rights reserved.
  18. 18. Application for Capital (VaR) Measurement Objective of LDA • Augmentation of the insufficient internal loss data, especially for tail events • Qualitative adjustment of OP VaR LDA Modeling Internal Adjusted Externa l Amount Expected Unexpected Stress Loss Loss Loss Adjusted Adjusted Expected Unexpected Loss Loss Mean (frequency) or mean and quantile (severity) are adjusted to reflect the impact of possible loss events that never occurred in the bankCopyright © 2013 , SAS Institute Inc. All rights reserved.
  19. 19. 4.6 Application for Capital (VaR) Measurement Internal + CORDEX Severity Parameter Mean / Internal Data Frequency Estimation Quantile Same Distribution Consortium Severity Parameter Mean / Weighted Cell Data Frequency Estimation Quantile Average Scenario Data Severity Mean / Frequency Quantile Parameters Integration for Integration Adjusted Loss Internal + Consortium Distribution Scenarios Weighted Internal Sev & Freq Average +consortium DistributionCopyright © 2013 , SAS Institute Inc. All rights reserved.
  20. 20. Data of other Exchanges Sample Data published by a. Federal Reserve Bank Of Boston b. OrexCopyright © 2013 , SAS Institute Inc. All rights reserved.
  21. 21. FEDERAL RESERVE BAK OF BOSTON 2006 Number of LDCE Losses Losses ≥ $10,000 Occurring in Years When Data Capture Appears Stable (annualized)Corporate Finance 1 2 11 14 23 8 59Trading & Sales 4 3 30 36 6 44 1,204 9 1,335Retail Banking 420 6,218 690 811 103 39 2,257 511 11,049Commercial Banking 9 484 32 65 1 5 254 85 935Payment & Settlement 96 81 32 7 2 10 549 43 820Agency Services 1 6 7 57 2 26 830 929Asset Management 47 19 25 7 335 16 449Retail Brokerage 11 19 254 606 2 404 36 1,333Other 76 305 322 73 22 4 634 27 1,462All Business Lines 619 7,165 1,398 1,693 137 136 6,490 734 18,371 Note: Business line/event type combinations in red indicate more than 1,000 losses; those in yellow indicate less than 25 losses. Business line/event type combinations that are outlined indicate less than one loss per year. Total number of losses within a business line or event type may be subject to rounding error (see Appendix I for more detail).Copyright © 2013 , SAS Institute Inc. All rights reserved.
  22. 22. FEDERAL RESERVE BAK OF BOSTON 2006 Total LDCE Loss Amount ($ Millions), Annualized Losses ≥ $10,000 Occurring in Years When Data Capture Appears Stable Employ- Clients, Business Execution, ment Damage to Internal External Products & Disruption Delivery & Percent of Practices & Physical Other Fraud Total Fraud Fraud Business & System Process Total Workplace Assets Practices Failures Mgmt SafetyCorporate Finance 11.9 0.2 2.2 25.5 0.0 4.2 0.6 0.0 44.7 0.5%Trading & Sales 8.5 100.9 4.3 370.9 0.3 5.0 238.8 12.9 741.6 8.6%Retail Banking 35.9 237.3 75.3 346.8 8.8 17.8 316.2 5.6 22.8 1,066.4 12.3%Commercial Banking 0.6 60.4 2.8 67.2 0.1 0.2 24.1 0.2 3.5 159.2 1.8%Payment & Settlement 7.2 10.9 2.1 1.0 0.2 1.9 24.1 0.0 4.1 51.4 0.6%Agency Services 1.3 0.8 1.6 5.5 0.7 1.5 85.5 97.0 1.1%Asset Management 0.1 1.6 2.1 181.4 0.0 0.7 32.8 0.5 219.3 2.5%Retail Brokerage 2.2 1.5 28.4 81.0 0.0 22.0 6.0 141.1 1.6%Other 8.9 25.5 29.6 5,820.5 110.7 38.1 84.9 3.9 0.5 6,122.5 70.8%Total 6,899.7 76.6 439.1 148.3 120.8 65.3 832.7 10.2 50.4 8,643.2 100.0%Copyright © 2013 , SAS Institute Inc. All rights reserved.
  23. 23. OREX DATA Distribution of Frequency of Loss by Business Line And Event Type 2004-08 Intern Externa Employmen Clients Executio al l t Product Disaster Technolog n,deliver MalicNos of Events Fraud Fraud Practices & s& s y& y& ious Total % of Workplace Busines Safety s Infrastruct Process Practic & Public ure Manage Dama es Safety Failures ment ge TotalCorporate Finance 14 154 148 275 17 11 406 0 1,025 0.72% 10.39Trading & Sales 96 773 558 709 19 786 11,845 0 14,786 % 60.39Retail Banking 3,843 43,528 8,368 7,797 1,052 1,258 19,875 204 85,925 %CommercialBanking 180 4,607 336 2,054 64 265 5,358 5 12,869 9.04%Clearing 34 709 65 86 3 145 1,324 0 2,366 1.66%Agency Services 30 310 187 264 17 120 5,941 0 6,869 4.83%AssetManagement 49 73 183 584 12 90 2,716 0 3,707 2.61%Retail Brokerage 210 359 701 2,586 12 69 1,701 0 5,638 3.96%Private Banking 124 408 162 1,637 20 80 2,843 1 5,275 3.71%Corporate Items 45 260 1,310 300 232 112 924 7 3,190 2.24%Mutliple Lines 24 162 26 108 17 34 269 3 643 0.45% 142,29Total 4,649 51,343 12,044 16,400 1,465 2,970 53,202 220 3 Copyright © 2013 , SAS Institute Inc. All rights reserved.
  24. 24. OREX DATA Distribution of Gross Loss by Business Line And Event Type 2004-08 INTER EXTERNA EMPLOYME CLIENTS DISASTE EXECUTIO Maliciou Total % of NAL L FRAUD NT PRODUCTS RS AND TECHNOL N& s Total FRAUD PRACTICE & PUBLIC OGY & DELIVERY damages & Business Safety Infrasctur Process Workplace e Failures Safety Practices ManagementCorporate 10 624 49 959 1 6 758 0 2,407 5.80%FinanceTrading & Sales 1,617 1,083 195 1,636 6 115 4,726 0 9,378 22.60%Retail Banking 774 3,211 1,000 3,503 147 214 3,499 16 #### 29.79%Commercial 283 1,589 54 1,776 7 158 2,077 0 5,943 14.32%BankingClearing 8 56 10 311 1 22 199 0 606 1.46%Agency Services 21 32 21 428 5 14 1,021 0 1,543 3.72%Asset 185 24 89 878 18 10 696 0 1,900 4.58%ManagementRetail Brokerage 139 38 163 651 1 6 210 0 1,209 2.91%Private Banking 109 253 45 987 2 6 356 0 1,758 4.24%Corporate Items 69 115 238 437 108 13 654 1 1,635 3.94%Mutliple Lines 27 386 40 2,051 6 29 219 0 2,758 6.65%Total 3,241 7,411 1,905 13,618 301 591 14,416 17 4150 1Copyright © 2013 , SAS Institute Inc. All rights reserved.
  25. 25. Questions and AnswersCopyright © 2013 , SAS Institute Inc. All rights reserved.
  26. 26. Thank YouS.RajendranChief ExecutiveCordex India P Ltde mail: cordexindia@gmail.comPhone: 91 22 2884 6220/ 6221 Copyright © 2010, SAS Institute Inc. All rights reserved.

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