Caesarea Center Annual Summit PP presentation.ppt. Agenda ..... finance.
Product control. Financial control. Market risk. Operational risk. Credit risk. Front
office.
Thoughts on risk management Pierre Pourquery (Partner)
May 2009
Agenda
Lessons learned from the crisis Risk management diagnostic Possible solutions
Caesarea Center Annual Summit PP presentation.ppt
1
1. Lessons from the crisis Excessive focus on growth
Implementation of new regulation
Rapid volume growth Protection
Growth
• Basel II: Credit risk
•OTC Derivatives •Mortgages •MBS
• Basel II :Operational risk
Increased complexity
• MFID • SOX • Etc..
Record profits and bonus
Lesson 1: uncontrollable growth? Caesarea Center Annual Summit PP presentation.ppt
2
Most banks targeted top spot Syndication (2008)
IR derivatives € (2008) 9%
JPMorgan 7%
BoA - ML 5%
Citi
Deutsche Bank
FX derivatives (2008) Deutsche Bank
16%
JP Morgan
22%
UBS
16%
Barclays
13%
9%
RBS
4%
Citi
7%
BNP Paribas - Fortis
4%
RBS
7%
3%
Sumitomo Mitsui
BNP Paribas
3%
Mitsubishi
Barclays
3%
Mizuho
3%
Wells - Wach Deutsche Bank
2%
Barclays
2%
9% 8%
SG CIB
7%
Calyon
RBC
2%
HSBC
2%
Goldman
1%
SG CIB
1%
ING
1%
Morgan Stanley
1%
UBS
1% 0
2
4%
HSBC
4%
Lehman
4%
Goldman
3%
Morgan Stanley
3%
BofA
2%
Dresdner
2%
BNP Paribas - Fortis
2%
6%
2%
Calyon
JP Morgan
Natixis
6%
Credit Suisse HSBC
5%
RBS
5%
Citi 4
6
8
10
4% 0
5
10
15
20
2%
Merrill Lynch
1%
ABN
1%
Calyon
1%
SG CIB
1%
RBC
1%
0 10 Banks that have suffered during the crisis
20
30
Source: Dealogic, Euromoney; BCG Caesarea Center Annual Summit PP presentation.ppt
3
The Volume of OTC Derivatives Has Soared Outstanding OTC derivatives ($trillions) 700
Other 525
CDS Commodity
350
IR 175
Equity FX
0 98 H2
99 H1
99 H2
00 H1
00 H2
01 H1
01 H2
02 H1
02 H2
03 H1
03 H2
04 H1
04 H2
05 H1
05 H2
06 H1
06 H2
07 H1
07 H2
Source: OTC Derivatives Market Activity reports, Monetary and Economic Department, BIS
Caesarea Center Annual Summit PP presentation.ppt
4
Rapid growth of the US subprime mortgage market In 2005 & 2006, more than $1,200bn subprime mortgages issued in the US
And subprime mortgages have grown as a % total US mortgage market
Subprime originations $bn
Subprime share total originations, %
800
25
625 600
+421%
605
470
20
+320%
15
400 310
10
180
200
5
120
0
0
2001
2002
2003
2004
2005
2006
2001
2002
2003
2004
2005
2006
Source: Inside Mortgage Financial figures, Wall Street Journal, 12 March 2007; Broker Reports Caesarea Center Annual Summit PP presentation.ppt
5
Significant increase of MBS issuance in the last 10 years
Volume of subprime MBS issued has increased over 400% since 2001 Subprime MBS issued $bn 600 508
483
401
400
+431%
203
200 96
122
0
2001
2002
2003
2004
2005
2006
Note: RMBS - Residential Mortgage Backed Securities; MBS - Mortgage Backed Securities; ABS - Asset Backed Securities Source: The 2007 Mortgage Market Statistical Annual, Inside Mortgage Finance, Bethesda, MD Caesarea Center Annual Summit PP presentation.ppt
6
Proportion of complex products has also increased significantly
OTC Derivative
2003
2007
Legend
10%
CDS
44%
Multi Name CDS Single Name CDS
14%
Equity
56% Vanilla
Vanilla
12%
Interest Rate
Non-Vanilla
19%
Non-Vanilla Swap FRA, IR Option & Vanilla Swap
Source: ISDA Operations Benchmark Survey, ISDA & OTC Derivatives Market Activity reports, Monetary and Economic Department, BIS
Caesarea Center Annual Summit PP presentation.ppt
7
2. Lessons from the crisis Significant investments in risk management could do very little to prevent the losses
A very "controlled" environment... Oversight External auditors
Enterprise risk data
Internal control
Risk
Risk control self-assessment
MO
Oversight
Tools and data
Regulators
Internal auditors
...that masks critical weaknesses
Risk culture
Tools and data
Detection tools Integrated view across controls and risks
Trading surveillance Overview of controls in place VAR
Compliance
Management
Relevant and accurate reporting
Monthly reporting
Organisation and people
Governance
Central OpRisk department
Risk Committees
"Local" OpRisk managers
Vast set of controls
Independent control functions
Organisation and people
Governance
Compensation
Effective "governance model"
Competence
Strong role of Risk in innovation and growth related decision
"Real" independence
Stress testing of controls
Adequate allocation of control staff
Clear formalisation of roles and accountability
Lesson 2: ineffective risk management?
Caesarea Center Annual Summit PP presentation.ppt
8
How would you feel ?
Head of Nuclear Power Plant Incentive KPIs Revenues Profit Assets availability Security
Anything familiar with banks? Caesarea Center Annual Summit PP presentation.ppt
9
Agenda
Lessons learned from the crisis Risk regime diagnostic Possible solutions
Caesarea Center Annual Summit PP presentation.ppt
10
Ineffective risk management regime? Analysis of the current system Growth
Protection
Shareholders
Growth Protection Protection
Regulators
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Growth
Top management
Business 11
Ineffective risk management regime? The regulators "Wrong regulatory incentives" Growth
Protection
1.
Over abundance of controls – create duplications, confusions and unnecessary complexity -
2.
Focus on micro regulation that does not prevent systemic risks – does not capture sustainability and Shareholders risks of business models-
3.
Assumption that high level of capital sufficient to protect the bank – no consideration for extreme situations and operating model of risk management –
4.
Protection Costly and complex implementation – distract critical and scarce resources from more "effective" risk management -
Growth Protection
1 Regulators
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Growth
Top management
Business 12
Increasing the number of controls is not the solution Risk controls are vulnerable under extreme stress
While traditional audits revealed limited weakness …
… large losses occurred when “acceptable” controls failed under stress
Strong
31%
41%
65%
Control adequacy1
41%
Strong Acceptable
41%
Acceptable
28%
Deficient
7% Currencies (Europe)
41% 4%
7%
Currencies (U.S.)
24%
24%
4%
13%
17%
4%
4%
33%
4%
11%
7%
Deficient Low
48%
Medium High
Control vulnerability 2
45%
High Yield (Europe) 18%
21%
Currencies (U.S.)
High Yield (Europe)
14% MBS (U.S.)
Control adequacy1
Control adequacy1
Currencies (Europe)
Strong Acceptable
13% 4%
18% 7%
MBS (U.S.) 17%
37% 21%
Deficient Low
4%
20%
4%
41% 14%
Medium High
Control vulnerability 2 Strong Controls
Adequate Controls
Deficient Controls
Vulnerability Quadrant
Failure Point
Disguised Client Example (1) Control Adequacy: Ability of risk controls, if faithfully executed, to mitigate risk and hold up well under everyday stress (2) Control Vulnerability: Degree to which the risk control can be subverted by application of extraordinary stress
Focus should be on better controls, no more controls
Caesarea Center Annual Summit PP presentation.ppt
13
Ineffective risk management regime? The business "Poor risk culture"
Growth
Protection
Shareholders
Growth Protection Protection
Regulators
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
1.
Incentives designed to focus on growth, not on protection – not based on " real" profitability and long-term view -
2.
Limited participation in Risk Committee – no desire to engage -
3.
Limited understanding of growth/protection trade-offs
4.
Rapid increase of staff dilutes original risk culture
5.
Deficient business ethic
Growth
Top management
2 Business 14
FO/business lines not incentivised to care about the "risks" Front office
Controlling
£800,000
£600,000
£400,000
£200,000
Bonus Base salary Min Max
Min Max
Min Max
Min Max
Min Max
M&A corporate finance
Min Max
Min Max
£0
Debt and structured finance
Product control
Financial control
Market risk
Operational risk
Credit risk
Personal risk-return balance versus enterprise risk-return balance Caesarea Center Annual Summit PP presentation.ppt
15
Wages in the financial industry likely to decrease Relative fin. industry wages Regulatory legislation Deregulatory legislation
Relative financial wage 1.7
1999: Gramm-Leach-Bliley Act (repealed GlassSteagall & parts of Bank Holding Co. Act)
1933: Glass-Steagall Act 1933: Securities Act
Most likely? 1.6
1996: Investment Advisor Act Amended
1.5
1994: Riegle-Neal Interstate Banking & Branching Efficiency Act (repeals parts of Bank Holding Co. Act)
1.4
1956: Bank Holding Company Act
1934: Securities Exchange Act 1939: Trust Indenture Act
1.2
1940: Investment Advisors Act
1.1
1940: Investment Company Act
1920
1930
2008: Housing and Economic Recovery Act
1980-84: Removed interest rate ceilings (from Glass-Steagall)
1.3
1.0 1910 1909
2008: Economic Stimulus Act
1940
2008: Emergency Economic Stabilization Act (TARP)
2002: SarbanesOxley Act
1950
1960
1970
1980
1990
2000
2009: American Recovery and Reinvestment Act
2010 2020 2006 2010
After the 1929 crisis, wages in the financial industry collapsed and stagnated for almost 5 decades! Note: Relative wage = the ratio of the actual wages in the Financial Sector to the Non Farm Private Sector Source: "Wages & Human capital in the US Financial Industry: 1909-2006" by Thomas Philippon and Ariell Reshef, December 2008 Caesarea Center Annual Summit PP presentation.ppt
16
Ineffective risk management regime? The IT Growth
Protection
"Incomplete risk information" 1.
Poor quality of risk information – significant effort in reconciliation -
2.
Limited connectivity of information – only strong signals captured not weak signals –
3.
Qualitative information not captured – mostly quantitative information collected -
4.
Costly and complex risk infrastructure – trend to centralise transactions not risk information -
Shareholders
Growth Protection Protection
Regulators
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Growth
Top management
3
1 Business 17
In spite of significant investments in Risk IT infrastructure...
Implementing Basel II has cost banks 50-100€m on average
Basel II Implementation costs (€m)
> € 100m
20 %
€ 50m - € 100m.
< € 50m
12 %
88 %
100 bn Total assets in €
18
...risk information is still of poor quality
Proportion of institutions rating their risk data quality as 'High' 92
Market risk
62
Liquidity risk
Clear improve-ment opportunity
40
AML
8
Operational risk 0
75
Lack of proper data architecture
75
Lack of consistency and trust in underlying data
67
42
Lack of systems functionality
15
Credit risk
Lack of integration between different systems
Lack of resources to manage production and validation of risk data
31
Fraud
Main obstacles faced in producing risk data for use by business management
25
17
Poor system performance 20
40
60
80
100
Responses (%)
Caesarea Center Annual Summit PP presentation.ppt
0
20
40
60
80
100
Responses (%)
19
Ineffective risk management regime? Risk reporting "Failure to communicate well"
Growth
Protection
1.
No holistic view of risks and contagion effects – only captured through unrealistic correlations -
2.
No clear and concise risk reports with limited link to business impact – too risk centric and not linked to business metrics and strategy -
3.
Overly complex risk metrics - VAR metrics difficult to explain and use for hedging -
4.
Shareholders
Growth Protection
No timely information – not enough focus on detection and real time information Growth
Protection
Top management 4
Risk Caesarea Center Annual Summit PP presentation.ppt
Business 20
Ineffective risk management regime? The risk function "No real counter powers" Growth
1.
No real ability to enforce mitigations and say "No" - poor status and limited independence -
2.
Ineffective organisation – fragmented risk and control functions with unclear accountabilities and poor collaboration -
3.
4.
Focus on "normal" conditions and knowable risks - no time for in-depth risk analysis and understanding of "realistic" worst case scenario -
Protection
Shareholders
Growth Protection
Excessive belief on models - limited use of judgement and business experience -
Protection
5 Risk Caesarea Center Annual Summit PP presentation.ppt
Growth
Top management
Business 21
Too much focus on quantitative analysis This drives down efficiency and makes the risk function less effective Activity overview (average across 5 Invt. banks) Market Market risk unit unit risk
Total Total (1) FTE(1) FTE
Methodology and policy
% Global banking
9
1
Equity products
15
1
Market risk management
Market risk measurement
Data cleaning
28
11
20
23
Limit controlling
33
16
17
Report production
5
12
IT support
3
9
20
FICC 16
14 PTCM & global reporting
10
4
20
8
6
9
30
18
8
3
16
12
40
9
Local risk 13
6
17
6
21
13
12
22
10
15
F&SM 28
16
10
12
8
21
Global analytics 3
15
25
1
40
18
Total FTE 81
5
18
10
11
17
10
12
22%
Critical to re-establish the importance of judgement Caesarea Center Annual Summit PP presentation.ppt
22
Ineffective risk management regime? Top management "Sub-optimal decisions" Growth
Protection
1.
Focus on short-term growth
2.
High degree of separations and incomplete information – difficult to understand real nature of risks and material impacts leading to sub-optimal decision making -
3.
No explicit risk appetite and understanding of trade-offs – understandings of business and operating model risks not well understood -
4.
No active role in risk management – no systematic participation in Bank Risk Committee -
5.
Risk function not always part of the decisions – often ignored or not at the table -
Shareholders
Growth Protection Protection
6 Regulators
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Growth
Top management
Business 23
Ineffective risk management regime? Shareholders "Insufficient oversight" Growth
Protection
7 Shareholders
1.
Incomplete information on bank's risks
2.
No right to nominate directors – difficult to hold directors accountable
Growth Protection Protection
Regulators
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Growth
Top management
Business 24
Agenda
Lessons learned from the crisis Risk management diagnostic Possible solutions
Caesarea Center Annual Summit PP presentation.ppt
25
Creating a new risk regime Key success factors 1. Reliability, connectivity and timeliness of risk information better than accuracy –
Simpler but more robust risk metrics needed
–
Focus on connectivity of information
2. Put business sense and judgement back at the centre of risk management –
"Model" based risk management killed business judgement and made banks insensitive to weak signals
3. Reinforcement of risk culture –
The crisis has proven that strong risk culture is the best protection
–
Changing bonus structure unlikely to work
–
Active role of the risk function in fostering a strong risk culture
4. Integrate, don't segregate –
Integrate risk and control activities/functions: no need for multiple line of controls
5. Be innovative, integrate new dimensions in risk management –
Traditional risk management relies too much on historical data and models, and does not consider human behaviour and organisational dimensions
6. Adapt risk regime to business strategy –
Different risk regime depending on growth and profitability strategy
7. Be realistic and adapt –
Don't design a risk regime that you cannot finance (FTE, IT, etc..)
–
Don't over-rely on risk models or expensive IT: use judgement and tactical solutions
Caesarea Center Annual Summit PP presentation.ppt
26
What matters most in the new risk regime 1. Restoring trust "Emphasis on valuation, growth risks & culture" 1. Control of the "Stock" – – – – –
Production of daily P&L with detailed explanation and risk profile Tight control on utilisation of scarce resources Integration of risk and product control functions Creation of Extreme Risk team
1. Ensure robustness of asset valuations and P&L
Qualitative & quantitative risk analysis (from 10/90 to 50/50)
2. Control of the growth –
Lead stronger New Product Committee
–
Operational risk limits
Growth Protection
Protection 3. Risk culture and business enablement
– –
Support actively business on management of trade-offs (e.g. operating model risks) Business experience required
Growth
Protection
Top management
Growth
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Business 27
What matters most in the new risk regime 2. Detection and quicker reaction "Emphasis on valuation, growth risks & culture" 1. Control of the "Stock" – – – – –
Production of daily P&L with detailed explanation and risk profile Tight control on utilisation of scarce resources Integration of risk and product control functions Creation of Extreme Risk team
2. Quicker and better response through better connectivity of all types of information
Qualitative & quantitative risk analysis (from 10/90 to 50/50)
2. Control of the growth –
Lead stronger New Product Committee
–
Operational risk limits
Growth Protection
Protection 3. Risk culture and business enablement
– –
Support actively business on management of trade-offs (e.g. operating model risks) Business experience required
Growth
Protection
Top management
Growth
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Business 28
Change the organisation to detect better Key for transmitting signals
Key for detecting and understanding signals
High degree of separation, i.e. large geodesic distance
Poor connectivity, i.e. low density
Low degree of separation, i.e. short geodesic distance
Rich connectivity, i.e. high density with path redundancy
Lower attenuation of signals
Better triangulation of signals
Signal/Noise ~ Attenuation L
Signal/Noise ~ √k ; ~ √P
Caesarea Center Annual Summit PP presentation.ppt
29
Detection, not measurement is what matters most
Access
Deal booking
Limit check
Confirmation
Reconciliation
Payments
P&L
FO
Strong signal
MO
BO
RISK
IT
Finance
Weak signals
Critical to build a data infrastructure capable of “connecting the dots” and yielding insights into the state of operations and identifying strong signals Caesarea Center Annual Summit PP presentation.ppt
30
Human behavior matters Leverage of cognitive model
Icosystem Cognitive bias library
ision r dec e d a r t ach ate e odel. m i t lm Es viora beha
Attitudes Motivations Cognitive biases
tive redic p h t el wi mod
Risk perception biases Risk decision biases Hyperbolic discounting Information overload biases
Extraction of cognitive biases for one trader by type of market conditions.
Definition of context-relevant (e.g., trading) decision strategies/biases.
YTD performance Trading history Market conditions
Cognitive model (virtual trader)
Trading actions Reporting Performance 100% 90%
Caesarea Center Annual Summit PP presentation.ppt
80% 70% amb none lex eqw eba wad
60% 50% 40% 30% 20% 10% 4 att r 7 att r 7 att r tru etr ue tru efa ls e fa lse tru tru fa e etr ls efa u ls tru e 4 etr alt e 4 u att tru e 7 r etr alt 4 ue att tru 4 r etr alt 7 ue att tru r efa 7alt 7 ls e att tru 4 r efa alt 4 ls att e tru r efa 7alt 4 ls att e tru r efa 4alt 7 ls att e fa 7a r lse tru lt 7 att e fa 4a r lse tru lt 4 att e fa 7 r lse a tru lt 4 att e fa 4 ls r etr alt 7 ue fa att lse 7a r lt fa 7 ls fa att e ls r efa 4alt 4 ls fa att e ls r efa 7alt 4 ls fa att e ls r efa 4alt 7 ls att e 7a r lt 7 att r alt
alt
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7
4
alt
att r 4 7
alt
att r
att r 7
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7
all
0% 4
r range er unde d a tr r areas fo tify risk n e id to er tual trad tors. • Use vir conditions. k indica havioral model. s ri le t b e a e of mark e with measur g into b onitorin cil m n o e c c e fa R r • su educed • Build r
Main decision biases for one trader by type of market conditions.
31
What matters most in the new risk regime 3. Control the growth "Emphasis on valuation, growth risks & culture" 1. Control of the "Stock" – – – – –
Production of daily P&L with detailed explanation and risk profile Tight control on utilisation of scarce resources Integration of risk and product control functions
3. Active management of growth risks
Creation of Extreme Risk team Qualitative & quantitative risk analysis (from 10/90 to 50/50)
2. Control of the growth –
Lead stronger New Product Committee
–
Operational Protection risk limits
Growth Protection
3. Risk culture and business enablement – –
Support actively business on management of trade-offs (e.g. operating model risks) Business experience required
Growth
Protection
Top management
Growth
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Business 32
alt
att r
att r
7
0% 7
4
7
4
7
4
alt
alt
alt
10% 7
4
4
7
att r
att r
att r
att r 7 7
7 att r
att r
att r
att r
att r
tru etr ue tru efa ls e fa
alt
alt
att r
60%
50% 80%
70% amb none lex eqw eba wad
60%
50%
Workshop-based risk factor superset definition and analysis.
+
Caesarea Center Annual Summit PP presentation.ppt amb none lex eqw eba wad
20% 40%
Behavioral clustering of traders.
amb none lex eqw eba wad
Main decision biases by type of market conditions for all traders.
x x xx x x
Syn thet ic in
x x x x xxx
dica tor 1
Qualitative research workshop
x xx
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to
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et
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att r
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amb none lex eqw eba wad
Attitudes and motivations
alt
20%
alt
0% 4
30%
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30%
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0% 70%
7
40%
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50%
10%
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30%
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att r tru etr ue tru efa ls e fa lse tr u tru fa e etr ls efa u ls tru e 4 etr alt e 4 u att tru e 7 r etr alt 4 ue att tru 4 r etr alt 7 ue att tru r efa 7alt 7 ls e att tru r efa 4alt 4 ls att e tru r efa 7alt 4 ls att e tru r efa 4alt 7 ls att e fa 7a r lse tru lt 7 att e fa 4a r lse tru lt 4 att e fa 7 r ls etr alt 4 ue att fa 4 r ls etr alt 7 ue att fa ls r efa 7alt 7 ls att fa e ls r efa 4alt 4 ls att fa e ls r efa 7alt 4 ls att fa e ls 4 r alt efa 7 ls att e 7a r lt 7 att r
. 7
4
Mesoscopic approach applied to security of operations
Signals and alerts extraction
100%
90%
Translating quantitative and qualitative research into meaningful, monitorable signals.
80%
Quantitative research consistency
Qualitative research reconciliation
Quant Qual Signal
Group 1 Volume pressure Risk averse Volume
Group 2 Exceeds limit Prestige Limits
Group 3 High variance Minimum perform Variance threshold
Group 4 Volume thriving Risk addict Volume
X Key risk signals
tige
n ctio ddi a k Ris rm erfo mp u im Min n rsio ave k Ris
Only focus signals need be monitored. Focus signals change over time as new indicators arise. 33
What matters most in the new risk regime 4. Enforcing a risk culture "Emphasis on valuation, growth risks & culture" 1. Control of the "Stock" – – – – –
4. Active support to the business on management of critical trade-offs
Production of daily P&L with detailed explanation and risk profile Tight control on utilisation of scarce resources Integration of risk and product control functions Creation of Extreme Risk team Qualitative & quantitative risk analysis (from 10/90 to 50/50)
2. Control of the growth –
Lead stronger New Product Committee
–
Operational Protection risk limits
Growth Protection
3. Risk culture and business enablement – –
Support actively business on management of trade-offs (e.g. operating model risks) Business experience required
Growth
Protection
Top management
Growth
Protection
Risk Caesarea Center Annual Summit PP presentation.ppt
Business 34
Other key changes in the new risk regime "Emphasis on valuation, growth risks & culture" 1. Control of the "Stock" –
Production of daily P&L with detailed explanation and risk profile
–
Tight control on utilisation of scarce resources Integration of risk and product control functions Creation of Extreme Risk team
– – –
1. Simpler reporting with integrated view of business strategy, risks (Operations, key risk factors), performance (P&L, growth, cost), & constraints (liquidity, capital, resources)
"Stronger governance" 1. Risk committee at Board level 2. Clarification of risk appetite and decisions on key trade-offs (risk, cost, growth) 3. Integrate risk into business and operating model related decisions
"Focus on connectivity" 1. Centralisation of risk data, not transaction 2. Connectivity of information (Finance, Risk, Controls, Operations, HR, Market data)
Qualitative & quantitative risk analysis (from 10/90 to 50/50)
2. Control of the growth – –
"Risk information in business context"
Growth
Lead stronger New Product Committee Protection risk limits Operational
Protection
3. Risk culture and business enablement –
Support actively business on management of trade-offs (e.g. operating model risks)
–
Business experience required
"Enforce risk culture" 1. Enforcement of tighter controls on optimisation of scarce resources Growth
Protection
Top management
Growth
2. New remuneration scheme
Protection
3. Compulsory participation in Risk Committees 4. Risk managers in the business
Risk Caesarea Center Annual Summit PP presentation.ppt
Business 35
Enforce a new risk culture Explicitly and boldly incorporate Business Principles in bonus calculation Firm newly adopted competency model Developing the business
• Results orientation • Client focus
Preparing the future
• Strategic ability • People development
Working together
• Change leadership • Cooperation • Team leadership
Business principles Acting responsibly
Client & bank long term interest Accountability Rigor & transparency Courage & discipline
(Ratio between 0 and 1) (Same process as 2007)
X M€ x 0 = .... 0€ ! Caesarea Center Annual Summit PP presentation.ppt
36
The role of the regulators in the new risk regime Imposing new minimum level of capital not really addressing the issue More active monitoring
Deploy new law
Growth
Protection
1. More frequent, qualitative and granular risk monitoring - on key risk factors, not only on capital measures 2. Assess robustness and effectiveness of risk management process
1.
Shareholders
Ensure proper governance
3. Manage systemic risk 4. Review competence of risk function 5. Reduce pro-cyclicality
1.
Enforce frequent meetings with top management to discuss business and operations risks
2.
Define accountabilities for each risks
3.
Define stringent rules on committees structures and roles
Growth Protection
Protection
Regulators
Protection
Shareholders to nominate Directors
Growth
Top management Act as policeman 1.
Risk Caesarea Center Annual Summit PP presentation.ppt
"FSA banned an oil trader for 2 years for hidden deals"
Business 37
Questions
Pierre Pourquery Partner and Managing Director THE BOSTON CONSULTING GROUP
[email protected]
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