This document discusses frameworks and solutions for risk and capital management. It addresses establishing an enterprise risk management framework, optimizing capital allocation by linking risk to capital, and maximizing risk-adjusted returns. It emphasizes the importance of building these frameworks on a strong data and analytics foundation with continuous measurement and optimization. It also discusses identifying and quantifying total risk, allocating economic capital, and scenario analysis as part of an internal capital adequacy assessment process.
A Tale of Two Risk Measures: Economic Capital vs. Stress Testing and a Call f...Xiaoling (Sean) Yu Ph.D.
In this presentation that I gave in the 9th Annual Capital Allocation and Stress Testing Conference, I advocated for a coherent risk management framework that integrates Economic Capital and Stress Testing, after compared and contrasted the two.
Modern credit risk modeling (e.g., Merton, 1974) increasingly relies on advanced mathematical, statistical and numerical echniques to measure and manage risk in redit portfolios
This gives rise to model risk (OCC 2011-16) and the possibility of nderstating nherent dangers stemming from very rare yet plausible occurrencs perhaps not in our eference data-sets International supervisors have recognized the importance of stress testing credit risk in the Basel framework (BCBS, 2009)
It can and has been argued that the art and science of stress testing has lagged in the domain of credit, vs. other types of risk (e.g., market), and our objective is to help fill this vacuum
We aim to present classifications & established techniques that will help practitioners formulate robust credit risk stress tests
A Tale of Two Risk Measures: Economic Capital vs. Stress Testing and a Call f...Xiaoling (Sean) Yu Ph.D.
In this presentation that I gave in the 9th Annual Capital Allocation and Stress Testing Conference, I advocated for a coherent risk management framework that integrates Economic Capital and Stress Testing, after compared and contrasted the two.
Modern credit risk modeling (e.g., Merton, 1974) increasingly relies on advanced mathematical, statistical and numerical echniques to measure and manage risk in redit portfolios
This gives rise to model risk (OCC 2011-16) and the possibility of nderstating nherent dangers stemming from very rare yet plausible occurrencs perhaps not in our eference data-sets International supervisors have recognized the importance of stress testing credit risk in the Basel framework (BCBS, 2009)
It can and has been argued that the art and science of stress testing has lagged in the domain of credit, vs. other types of risk (e.g., market), and our objective is to help fill this vacuum
We aim to present classifications & established techniques that will help practitioners formulate robust credit risk stress tests
It covers all the important concepts and has relevant templates which cater to your business needs. This complete deck has PPT slides on Operational Risk Management Overview Powerpoint Presentation Slides with well suited graphics and subject driven content. This deck consists of total of twenty four slides. All templates are completely editable for your convenience. You can change the colour, text and font size of these slides. You can add or delete the content as per your requirement. Get access to this professionally designed complete deck presentation by clicking the download button belo
Banks and credit unions continue to be challenged by the complexity of IFRS 9. The technical complexity challenge is compounded by associated high cost of managing and running IFRS 9 models.
Developing IFRS 9 analytics and applying them in day-to-day business can provide an important competitive advantage.
To realize these benefits, and to address computational complexity under IFRS 9, BankingBook Analytics has developed an automated solution.
Regulatory capital requirements pose a major challenge for financial institutions today.
As the Asian financial crisis of 1997 and rapid development of credit risk management revealed many shortcomings and loop holes in measuring capital charges under Basel I, Basel II was issued in 2004 with the sole intent of improving international convergence of capital measurement and capital standards.
This paper introduces Basel II, the construction of risk weight functions and their limits in two sections:
In the first, basic fundamentals are presented to better understand these prerequisites: the likelihood of losses, expected and unexpected loss, Value at Risk, and regulatory capital. Then we discuss the founding principles of the regulatory formula for risk weight functions and how it works.
The latter section is dedicated to studying the different parameters of risk weight functions, in order to discuss their limits, modifications and impacts on the regulatory capital charge coefficient.
Operational Risk Loss Forecasting Model for Stress TestingCRISIL Limited
Presentation on ‘Operational Risk Loss Forecasting Model for Stress Testing – A Three-Stage Approach’ made by Dr. James Lu, Director, Risk & Analytics, CRISIL Global Research & Analytics (GR&A) at The 17th Annual OpRisk North America 2015, New York
Operational risk management and measurementRahmat Mulyana
a short description in mixed English and Bahasa Indonesia on Operational Risk Management and Measurement, in particular value at risk calculation using Monte carlo Simulation. Another method using EVT (Extree Value Theory) will be delivered shortly. regards
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Operational Risk Management Under Basel II & Basel IIIEneni Oduwole
In this introductory presentation on the subject, salient features that changed in approaches adopted for Operational Risk Management under Basel I and Basel I were highlighted.
It covers all the important concepts and has relevant templates which cater to your business needs. This complete deck has PPT slides on Operational Risk Management Overview Powerpoint Presentation Slides with well suited graphics and subject driven content. This deck consists of total of twenty four slides. All templates are completely editable for your convenience. You can change the colour, text and font size of these slides. You can add or delete the content as per your requirement. Get access to this professionally designed complete deck presentation by clicking the download button belo
Banks and credit unions continue to be challenged by the complexity of IFRS 9. The technical complexity challenge is compounded by associated high cost of managing and running IFRS 9 models.
Developing IFRS 9 analytics and applying them in day-to-day business can provide an important competitive advantage.
To realize these benefits, and to address computational complexity under IFRS 9, BankingBook Analytics has developed an automated solution.
Regulatory capital requirements pose a major challenge for financial institutions today.
As the Asian financial crisis of 1997 and rapid development of credit risk management revealed many shortcomings and loop holes in measuring capital charges under Basel I, Basel II was issued in 2004 with the sole intent of improving international convergence of capital measurement and capital standards.
This paper introduces Basel II, the construction of risk weight functions and their limits in two sections:
In the first, basic fundamentals are presented to better understand these prerequisites: the likelihood of losses, expected and unexpected loss, Value at Risk, and regulatory capital. Then we discuss the founding principles of the regulatory formula for risk weight functions and how it works.
The latter section is dedicated to studying the different parameters of risk weight functions, in order to discuss their limits, modifications and impacts on the regulatory capital charge coefficient.
Operational Risk Loss Forecasting Model for Stress TestingCRISIL Limited
Presentation on ‘Operational Risk Loss Forecasting Model for Stress Testing – A Three-Stage Approach’ made by Dr. James Lu, Director, Risk & Analytics, CRISIL Global Research & Analytics (GR&A) at The 17th Annual OpRisk North America 2015, New York
Operational risk management and measurementRahmat Mulyana
a short description in mixed English and Bahasa Indonesia on Operational Risk Management and Measurement, in particular value at risk calculation using Monte carlo Simulation. Another method using EVT (Extree Value Theory) will be delivered shortly. regards
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Operational Risk Management Under Basel II & Basel IIIEneni Oduwole
In this introductory presentation on the subject, salient features that changed in approaches adopted for Operational Risk Management under Basel I and Basel I were highlighted.
Our Benchmarking Paper highlights the work Prime Alliance has done over the years with its customers and other lenders. Generally speaking the results and conclusions found here are based on the experience of a segment of the country’s top 500 mortgage lending credit unions. Our intent was to understand pull-through rates, lending productivity and what it costs to close a mortgage. What does it take to maximize the first two while minimizing the third? Read on. We’ll share what we’ve learned from the success of our clients, the most efficient lenders in the industry. For more info: www.nafcu.org/primealliance
How does Operational Risk Management fit into an organization's Strategic Planning? This presentation attempts to provide a functional and implementable response.
With our experience and our experts, Chappuis Halder & Co would provide appropriate incentives at every level of your organization. It could help you at the time to manage “modern” risk alongside performance
In this study we survey practices and supervisory expectations for stress testing (ST), in a credit risk framework for banking book exposures. We introduce and motivate ST; and discuss the function, supervisory requirements and expectations, credit risk parameters, interpretation results
with respect to ST. This includes a typology of ST (uniform testing, risk factor sensitivities, scenario analysis; and historical, statistical and hypothetical scenarios) and procedures for con-ducting ST. We conclude with two simple and practical stress testing examples, one a ratings migration based approach, and the other a top-down ARIMA modeling approach.
Risk Management in Banks - Overview (May 2024)Kristi Rohtsalu
Risk is at the heart of banking – and so is risk management. In a regulated bank, it is crucial to take a holistic view, including economic and normative perspectives. This material gives an overview of enterprise risk management in banks; specifics by risk type – credit risk, market risk, operational risk, liquidity risk, and other relevant risks – are not discussed here.
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
Identifying, understanding and evaluating an organization’s most significant risk areas will set the foundation for a robust enterprise risk management (ERM) program. This sample guide outlines an effective and proven approach to building ERM capabilities that will ultimately enhance corporate governance, align and integrate varying views of risk and risk management, and respond to the changing business environment.
1. Risk and Capital Management Solution Delivery
Economic Capital Process & System
2. 2
Enterprise Risk Management (ERM) Framework
Efficiency in Leverage & Liquidity:
Efficiently Manage Leverage as it
Pertains to ALM and Trading Book
Efficiently Manage Asset & Funding
Liquidity
Protect Bank’s Solvency
Improved Risk Awareness:
Know your Risk and Plan Ahead
Timely Identification of Portfolio
Volatility & Proactive Decision Making
Successful
Return
Capital &
Loss Reserve
Portfolio
Risk
Jointly Chaired
by
Risk & Finance
Optimize Capital Allocation:
Link Risk to Capital (Expected and
Unexpected Losses based on risk
drivers)
Set Capital Target based on solvency
rate
Define Risk Appetite and Limits
Adequacy in Capital in Relation to
Bank’s Overall Risk Profile
Comprehensive Pricing System that
Covers Expected Losses
Effective Downturn Treatment
(PIT/TTC Risk parameters & stress
based factors)
Maximize Risk-Return:
Proactive Measurement of Exposure
Quality
Proactive Measurement of Exposure
Concentration
Be Able to Forecast Losses and
Earning at Risk
Shareholders Value-Add
Hold good Risk Adjusted Return
on Capital (RAROC) and SVA
Hold good Economic Profit/EVA,
ROA, ROE, IRR etc.
Competitive Advantage
and Level-Playing Field:
Build Goodwill & Reputation as Strong
Capitalized & Asset holding Bank (Good
value-proposition for Investors)
Stay Current on Demanding Regulatory
Response (SEC, FFIEC, FDIC, FASB, OCC,
FED, BASEL/NPR, Dodd-Frank etc.)
Recognize Risk Appetite and Reward Stakeholders:
Clear Understanding of Bottom-UP Risk Assumed in
Portfolio
Tailor Risk for Business to Develop Top-Down
Classification that is Transparent to External
Stakeholders
Articulation of Risk Attributes for Senior
Management
Must be built on a strong data and analytics foundation with continuous measurement and optimization than establishing
empirical goals based on general or indicative market trends.
4. 4
Risk Appetite & Limits – Capital Management Process
Governance
Business
Processes
Measures
Committee Structure Roles and Responsibilities Policies and Documentation
Board Level Risk and Capital
Committee (RCC)
• Business
• Risk
• Finance
• Treasury
• Internal Audit
• ICAAP Policy and Manual
• Risk Appetite Statement
• Contingency Plans
• Methodology Documents
• Model Validation GuidelinesRisk
Committee
Risk & Capital
Committee
Planning Execution Evaluation
Risk Appetite Setting
Strategic Planning
Capital Planning and
Budgeting
New Product /
Business / M&A
Initiatives
Capital Adequacy
Assessment
Risk-Adjusted
Performance Review
Incentives
ICAAP Reporting and
Disclosure
Business Execution (Service Offering,
Pricing, Client Portfolio Management)
Risk Identification,
Measurement and
Monitoring
Financial
Assessment and
Forecasting
Capital
Management
Contingency
Planning
Liquidity
Management
Contingency
Planning
Risk Inventory
Economic and Regulatory Capital
Capital
Measures
Risk Adjusted
Performance
MeasuresStress Testing and Scenario Analysis
Allowance /Other Credit Risk
ValidationandAssurance
Well-designed capital management programs include governance, business processes and measures based on
lessons learned and regulatory requirements.
5. 5
The Total Risk has to be Matched by Different Layers for
Risk Taking Capacity
6. 6
Credit Risk ECAP Calculation Engine -- Illustrative
A sound economic capital model and system must be built on a strong data and analytics foundation with continuous
measurement and optimization depending on risk profile and target rating than establishing empirical goals based on general
or indicative market trends. The Total Risk has to be matched by different layers for Risk Taking Capacity.
7. 7
Risk , Return & Capital Management Building Blocks
Develop Risk Appetite and Risk Taking Capacity with deep learning from your own portfolio data , risk drivers, model results and
performance metrics. We will assist banks building out the capability pyramid driving from strategy through implementation.
Risk Appetite
Risk Capacity
Target Risk Profile
Optimize risk and return
Measures RAP & RBP
Risk & Finance Data Provisioning Process & Workflow
Focused Portfolio Reporting and Analysis on Credit Quality
and Concentrations, Which Drills Down to Risk Drivers
Allocate Economic Capital
Linking to Risk
Proactive Use of Traditional Risk Mgmt Methods
Limits, Approvals Standards, Asses Risk Drivers
Model Development, Validation & Model Risk Management
(Rating Models, Loss Models, Risk & Economic / Regulatory Capital Models)
IRR
Interest Rate
IRR
Group
IRR
Liquidity
OR
Operational
MR
Market
CR
Credit
BR
Business
Actual Risk Profile
Risk / Finance Dimensions
TBE – Group Concentration
Industry
Geography
Product
Collateral
Tenor / Maturity NIACC
RAROC
Capital Allocation
LOB
CIB Comm Consumer
North-East $$ $$ $$
Central $$ $$ $$
Mid-West $$ $$ $$
South-East $$ $$ $$
South-West $$ $$ $$
Total $$ $$ $$
Geography
“Portfolio Risk
Reporting” “Measure Performance /
Maximize NIACC”
Portfolio Management Committee
Jointly Chaired by Risk & Finance
Bottom-Up
Top-Down
“Optimize Risk /
Return”
“Allocate Economic
Capital”
12. 12
ICAAP Framework – Business Impacts, Scenario Analysis,
Risk Identification & Planning
How an economic downturn would affect
the firm's capital resources and future earnings;
and
the firm’s CRR taking into account future changes
in its projected balance sheet.
The institution’s “baseline” capital forecasts (at least
quarterly, based on its annual business plan)
A 3-year summary forecast capital position and a
description of the institution’s capital planning and
management process, including an outline of how ICAAP
is incorporated into this process.
Forward Looking Planning & Assessment
Editor's Notes
Talking Points
Think of data governance as a mission ….
… to meet these principles
Data is a critical corporate asset and must be managed as such.
Data management is very important to meeting your business strategy and therefore presents an opportunity and a threat.
Data cannot be managed without a proper data governance program.
Data cannot be managed using silo-efforts.
…. for these users
The analyst - how will better metadata management simplify my job and make me more effective as opposed to creating additional work?
The manager - how does this approach address my ongoing and growing list of “pain points” that I have in relation to data management?
The executive - how does data governance help me improve the bottom line?
The organization - how do we build a more collaborative, enterprise culture but still provide the flexibility and speed to market what we value as an organization?