Advanced Risk Management for Banks and Financial Institutions

In-Company Training

• ERM – a broad overview
• What triggered the Western banking crisis?
• Lessons that must be learnt: culture, organisational structure, expertise, data
• Roles and responsibilities of the senior management
• Corporate governance and the creation of a risk culture
• Case Study

• Empowerment of risk management
• Statement of risk appetite
• Risk reporting and the understanding of risk
• Roles and responsibilities of the Business Lines
• Who should be managing risks?
• Integration of risk within reporting lines
• Roles and responsibilities of the Risk Group
• Developing more robust risk assessment
• Reduction of model risks
• Creation of risk management policies and procedures
• Case Study

• How are these assessed 
• What are the usual methodologies?
• Development of an ICAAP – a brief overview
• What is an ICAAP?
• What should it contain?
• Guidance provided by supervisors
• Why, and what are the new approaches?
• The effectiveness of the traditional process: what works and what does not?
• Case Study

• What are the fundamental concepts of the new approach?
• Basic data requirements
• Exposure at Default, Probabilities of Defaults
• Loss Given Defaults and correlations
• How to estimate EADs
• How to estimate PDs:
• Use of historic data
• Case Study

• Statistical factor models such as scorecarding
• Traditional qualitative credit rating systems
• Through-the-Cycle vs. Point-in-Time PDs
• Modelling a credit portfolio
• Why is this important – concentration risk
• Simulating portfolio default
• Introducing correlations
• Measuring concentration risk
• Extension of the default model to a copula model
• Introduction of Leverage constraints
• Case Study

• Traded and non-traded (often called Interest Rate)
• Development of Value-at-Risk for traded Market Risk
• Introduction to VaR through a simple example
• What are some of the basic problems?
• Required regulatory infrastructure, including back-testing
• Unstressed and Stressed VaR
• Use of Expected Positive Exposure to estimate default capital
• Introducing the CCR Credit Valuation Adjustment – how
• Should credit risk and market risk be separated?
• Traditional techniques: banding, gap analysis and duration
• Case Study

• Funding Liquidity Risk
• Why was liquidity risk typically ignored
• How to address liquidity risk
• Creation of an Internal Liquidity Adequacy Assessment framework
• Case Study

• Creating a risk framework
• Risk identification – causal and event frameworks
• Recording of Loss Events and other data
• What should be stored – with a real example
• Definition of Loss – direct or indirect?
• Build or buy an OR database
• Risk assessment
• Which are the key processes – vertical or horizontal?
• Process mapping – what are the major risks in any given process?
• Indicator approaches – what are the key assumptions
• Key risk indicators – what can be used as a risk metric?
• Regulatory indicator approaches – what is permitted?
• Business Efficiency and Internal Control Factors
• Fitting severity and frequency distributions
• Modelling a LD, and estimating the 99.9% VaR
• Case Study

• Why stress test? What are the recent lessons?
• How was stress testing viewed prior to 2007?
• What happens in times of stress?
• What constitutes a good stress test?
• What are the management messages from stress tests?
• Regulatory stress tests: results from European tests
• Case Study

• Reputational risk
• What is the definition of reputational risk
• Has reputational risk been increasing or decreasing?
• What are the major areas of concern – and how can the potential reputational risks be managed
• Can reputational risk be assessed?
• What is the crisis plan to manage reputational damage
• Case Study

• Suitability of the model 
• Data requirements 
• Testing of the 
• Skills of the staff – developers, users, controllers
• Governance surrounding the model (and data) 
• Maintenance – upgrading, continued validation process
• Case Study

• RAROC: risk-adjusted return on risk-adjusted capital
• What is RAROC? How is it defined? Variants such as EVA
• Determining the cost of capital using the Capital Asset Pricing Model
• The use of RAROC: pricing and performance measurement
• The credit treasury – an example of risk transfer pricing
• Actively managing credit portfolios
• Calculating incremental and marginal credit VaR
• Using analytic models
• Measuring RAROC for an individual transaction
• Creating a risk-return frontier
• Actively managing the risk profile of the portfolio
• Case Study

• Proposed major changes to the Accord
• Raising the quality and transparency of the capital base
• Going concern and gone concern
• Limits in the capital base
• Building of capital buffers to reduce pro-cyclicality
• Case Study

• What are the objectives of ERM?
• What are the main hurdles to implementation?
• Culture and the embedding of risk management
• Availability, timeliness and quality of data
• Risk quantification
• Risk silos – how to aggregate risk measurement?
• How can these hurdles be overcome?
• Organisational and communicational
• Creation of a EW data warehouse
• Commonsense and judgement, not models

Mark is a banker with over 30 years experience in the UK corporate, investment and retail banking sectors. He qualified as an associate of the Chartered Institute of Bankers in 1981 finishing as the top candidate for the year with distinctions in International Trade and winning the Whitehead Prize for Monetary Theory.

Mark joined Lloyds Bank in the 1970’s after where he was appointed one of the first managers in the bank’s Corporate Banking Division. His duties included corporate governance, investment appraisals, credit control, control of lending by junior colleagues, direct lending and relationship management for individual companies and sectors.

During the 1980s Mark was appointed as one of the youngest Lloyds London City branch managers specialising in lending to employees of international bank clients and money market institutions. Duties included all aspects of lending control and the supervision at area level of lending by 5 retail branches which reported to him. Mark was subsequently promoted back to the Corporate Banking division as a senior corporate manager responsible for corporate governance and more complex treasury, banking, international trade and investment requirements of the bank’s largest clients, included some of the largest global energy companies, hotel groups, and construction companies. 

From 1990-2001 Mark served as a Director of Granville Bank – a private bank which specialised in client wealth management, secured lending and investment and treasury business – and was a main board director of Granville Holdings Plc, the parent company, a London City based merchant bank which itself specialised in high value clients, both corporate and private. 

For the past 9 years Mark has lectured extensively in Africa, the Middle East and Europe. Mark is an expert on corporate governance, Islamic finance and is also a subject specialist in investment, commercial and retail banking and finance. 

In-Company Training