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Challenge
With the possibilities of modern electronic technologies, world wide activities, and ever more sophisticated products the risk of banking is constantly increasing. Even large and long established banking institutions are not immune as prominent examples have shown. The Basle Committee has reacted to this development with recommendations for increased and more detailed monitoring and reporting. Most National Banks are following these recommendations. On the other hand, risk taking - if carefully applied - always was and remains a major source of income. The challenge is to find the right equilibrium between risk exposure, risk return and potential coverage:
Solution
In order to keep that equilibrium bank management needs sophisticated monitoring of the bank's transactions and positions and a focussed management reporting that enables the responsible managers to identify potential risk at the earliest possible moment and react accordingly.
The calculations involved in such monitoring and reporting include net present value determination, calculation of value at risk, static and dynamic gap analysis and more. The theoretical basis and the necessary software tools are available.
The remaining challenge is to determine the risk management concept suitable for the individual business of each bank and to implement such concept within the organisational and technical environment of the bank.
Our Approach
Development of an individual risk management concept allowing the bank's management to calculate, monitor and actively manage the bank's market related risks in order to meet regulatory requirements and maximise shareholder value.
We start the concept work with defining the required results which normally would include Value at Risk / NPV / Gap Analysis Reports, Balance Sheet Structure analysis, Capital Adequacy indicators, etc.
If required we would also investigate to establish modern concepts of risk-return management oriented at Return-on-Risk-adjusted-Capital (RORAC) and Risk-adjusted-Return-on Capital (RAROC). After the requirements are defined in such way we support the selection process of a suitable standard software package und support the implementation of the selected system within the existing IT-environment and into the organizational procedures of the bank.
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