Risk Management Lessons from the Crisis
A 2-day intensive course on the recent Banking Crisis – How poor Risk Management led to financial meltdown & how it affected the role of Operational Risk.
Implementing an Operational Risk Management regimen is a complex process. At its core is an understanding of what Operational Risk is and how it can best be managed. Delegates will explore the best operational risk management frameworks and how these have proven useful for banks' survival.
By the end of this course you will:
- Gain full understanding the source of the Crisis and its impact on Operational Risk
- Be able to recognise sound operational risk management strategies and implement them
- Learn how to position your organization to successfully manage the ever-present Operational Risk problem in banking and financial institutions
The course is relevant for Risk and Operational Risk Managers, Auditors, Compliance Officers of all levels from Investment Banks, Asset Managers and other financial institutions.
Description
During 2008 financial institutions of the world suffered unprecedented events. In the years to come the field of risk management will reflect on these events to develop new approaches and frameworks. As the dust settles, it is becoming clear that financial organizations that focused on qualitative operational risk were better prepared.
This course focuses on the actual events of 2008-2009 and shows how a failure in Operational Risk Management fuelled the subsequent Credit & Liquidity Crisis and the Financial Meltdown which engulfed the world in the closing months of 2008.
Main Topics Covered During This Training
- Conditions that led to the 2008 crisis
- The 2007 – 2008 crisis – a blow-by-blow account
- Why and where the crisis can be traced to a failure of Operational Risk Management?
- Emergence of Operational Risk Management (Governance, Risk and Compliance) as a focus point for bank survival
- Setting strong risk management function
- Compliance requirements
- Strategies for measuring and managing operational ris
- Operational risk in practice: internal and external fraud, system failures and more
Who Should Attend
This course is aimed at bankers and other financial industry professionals who wish to expand their knowledge and understanding of the 2008 financial crisis;
- Operational Risk Officers of all levels from Commercial and Central Banks
- Internal and External Auditors
- Risk Managers
- Compliance Officers
- Governance Risk Compliance Officers
- Senior Executives and Operations Officers
- Business Managers in financial services
- Consultants
- Solution Porviders
- Business and Product Managers
Teaching Method
To facilitate the understanding of Operational Risk use is made of a blended instructional approach, using instructor-led training with PowerPoint presentations, cases studies, exercises and multidirectional discussions. This comprehensive approach provides participants with social interaction, solid instruction, and a simulating environment, which allows them to observe and understand the entire ambit of Operational Risk.
DAY ONE
We begin with an introduction to define some basic concepts, principles and associated issues after which we will be examining the events which led to the current financial crisis. What went wrong and why? What do we need to do in the future? Day One includes a number of pertinent case studies.
Concepts & Basic Principles
- A short history of risk
- Dimension & drivers of risk management
- Governance in the risk management field
- Financial Bubbles - What they are & how they are caused
- Securitization
- What it is and how it works
- Why securitization is a key feature of financial markets
Collateralized Debt Obligations - how it works and who use them
- Credit Default Swaps - How it works?
- Using credit default swaps for speculation, hedging and arbitrage
- How a CDS is settled
- Risks in, and criticisms of the CDS market.
- Rating Agencies & Risk
The role of the Rating Agency in financial markets
- What role did rating agencies play in the financial crisis?
- Financial leverage
- How it works and why it was so critical in the events of 2008
The Sub-Prime Problem
- The mortgage market in the US
- Credit, Liquidity and Counterparty risk
- High-risk mortgage loans and lending/borrowing practices
- Mortgage securitization
- Credit Default Swaps
- The effects of leverage on the sub-prime problem
The Developing Crisis – the Events of 2007
- Turn of the mortgage market
- The liquidity crisis – what happened and why?
- How the crisis became international
The 2008 Financial Crisis
- Prelude
- Events of September
The Financial Meltdown
A Timeline of the weeks following the collapse. This includes events from around the world including regulatory responses.
The US’ Troubled Asset Relief Program (TARP)
Case Studies
Lehman Brothers - The collapse of Lehman Brothers inflicted 'chaos' on the markets. This case study looks at the collapse of Lehman Brothers and how this event triggered the 2008 meltdown.
- The events of September 2008
- Settlement of credit default swaps
During Lehman Brothers collapse, there was an escalation in failed trades in the UK and Europe. In conjunction with the Financial Services Authority the industry in the UK is looking at the reform of stock trading and settlement rules after these events. We examine the problems and the proposed solutions.
Iceland’s Banks - In the Fall of 2008 all three of the Iceland's major banks collapsed following their difficulties in refinancing their short-term debt and a run on deposits by foreign depositors. The causes of the collapse are closely linked to the 2008 financial crisis. In this case study we examine the events that led to this situation, what went wrong and how contagion from the worldwide financial crisis triggered the collapse.
Analysis of the Crisis
- Why these events happened
- What went wrong?
- Lessons from the Crisis
The 2008 Crisis & Operational Risk Management
- How a failure in Operational Risk management led to the 2008 crisis?
- Changes needed in the risk management frameworks
- How can the financial architecture be improved?
Case Study
Citibank – ”A giant on its knees”
- Global Fallout - A review summary of how the crisis has affected both the financial markets worldwide and the real economies in scores of countries across the globe.
DAY TWO
______________________________________________________________
In day two we move into the domain of Operational Risk Management. We examine what operational risk management is and how this critical issue is a value added proposition, which can increase a bank’s profitability and overall structural strength. We explore how a sound GRC (Governance, Risk and Compliance) regimen could have prevented what will possibly be regarded as the defining financial crisis of the 21st century.
Governance, Risk and Compliance
- The governance process
- Setting risk management objectives
- Building a risk culture
- Examples of a staff risk culture
- Examples of management risk culture
- Why are risk cultures important?
Compliance requirements
- Operational risk – definition and examples
- Enterprise Risk Management
- Key elements in managing operations risk
- A selection of case studies to illustrate the material covered
- The banking activity framework - the “Top-Down” approach of the BIS
- Main areas affected by operational risk
- Key Risk Factors
Measuring Operational Risk
- Risk Analysis
- Determining the “Risk Appetite”
- Risk impact/Frequency
- Impact vs. Probability
- Case Study
- Measurement methods
- The Loss Modeling Method
- The COSO ERM framework
- Monte Carlo simulations
- Operational risk & bank strategy
- Quantitative & Qualitative approaches
- Operational risk & the business cycle
- Problems in identifying operational risks
Developing an Appropriate Risk Management Environment
- Policy & structure
- Developing an appropriate risk management environement
- Implementation
- Mapping risks to controls
- Understanding risks, goals and priorities
- Prioritizing risk based on probability & impact
- Establishing responsibilities for risk management
- Mapping risk strategies to categories of control
- Designing & Documenting specific controls
- Implementing risk management controls
Specific Examples of Operations Risks
- Internal Fraud
- External Fraud
- Employment Practices and Workplace Safety
- Clients, Products & Business Practices
- Damage to Physical Assets
- Execution, Delivery & Process Management
- Business Disruption & System Failures
Managing Operations Risk
- Assessment methods
- Loss data collection (internal & external)
- Using loss data
- Scenario analysis
- Using realistic scenarios
- Statistical techniques
- Problems and issues in assessing & managing operational risk
The Risk Management Process
- Surveying the playing field - Environmental survey & Technology inventory
- Identifying & assessing the operational risks (including an illustrative operations risk management plan)
- Minimum control requirements
- Risk identification tools
- Control & mitigation of specific operational risks
- Establishing a framework of formal, written policies and procedures
Closing Case Studies
- National Australia Bank
- Société Générale
Both these case studies into recent events provide an in-depth examination of operational risk management failures resulted in substantial losses to the institutions concerned as well as the lessons learned.
These case studies provide an opportunity for an interactive exercise to discuss, explore and apply all the critical Operational Risk Management factors both to the case studies as well as to the events of 2007/2008.
Richard Barr
Richard holds a B.S. in International Business Administration from San Jose State University in California. His professional experience spans 19 years, 5 of which were spent with Wells Fargo Bank. Another 5 were spent honing his global banking skills, when Richard was involved with International Trade Finance, Real Time Gross Settlement and Cross Border Banking. The past 9 years have been in the private and high-tech sectors providing high-level consulting services, business analysis, project management and training to a wide range of banking clientele across the globe.
He has spent extensive time servicing a diversity of “financial institutional” clients, in South Africa, Poland, Sweden, Ireland, Netherlands, Greece, Bermuda, Malawi, United Kingdom and across North America. Clients include AIB Bank, Eurobank, ABSA Bank, CitiBank, Swedbank, INDEbank, IBM, Montran and Fundtech, as well as many others.
Richard has also filled the role of advisor to central banks on payment systems and technical payments issues. Furthermore, key staff from the Bank of England, South African Reserve Bank, Central Bank of Ireland and Bank of Portugal who have attended training sessions presented by Richard.
IN-HOUSE TRAINING
If you have a team of 4 or more this course can be customised and organised in-house at your convenience. Contact one of our advisors to find out more.
Call us now on +44 (0) 207 193 5035
or send an e-mail to: enquiry@eurekafinancial.com
