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Risk Management Case Studies

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  RISK MANAGEMENT MODULE A  – Asset Liability Management AND MODULE B  – Risk Management A PRESENTATION BYK ESWAR MBA XLRI, CAIIBCHIEF MANAGER, SPBT COLLEGE.  MarketCreditOperational BANKS TYPICALLY FACE THREE KINDS OF RISK ã Risk of loss due to unexpected re-pricing of assets owned by the bank, caused by either  – Exchange rate fluctuation  – Interest rate fluctuations  – Market price of investment fluctuations ã Risk of loss due to unexpected borrower default ã Risk of loss due to a sudden reduction in operational margins, caused by either internal or external factors viz Process failure, systems failure, human error, frauds but does not cover reputational risk/strategic risk. Daily price change (%) Unexpected price volatility TimeTimeDefault rate (%) Unexpected defaultAvg. default TimeMonthly change of revenue to cost (%) Unexpected low cost utilization Example “Stocks” “Loans with credit rating 3” “Business unit A”  Type of Risk   The Current Capital Accord ã Focusedoncreditriskbutformulabased ã Partiallyamendedin1996toincludemarketrisk ã Operationalrisknotaddressed ã Simpleinitsapplication ã Producedaneasilycomparableandverifiablemeasureof   bank’s soundness  Need for a new frame-work ã Financialinnovationandgrowingcomplexityof transactions ã Categorised  bank’s assetsintooneofonlyfour categorieseachrepresentingariskclass ã Madenoallowancefortheeffectportfoliodiversification ã Requirementofmoreflexibleapproachesasopposedto “one sizefits  all” Approach ã RequirementofRisksensitivityasopposedtoa  “broad -brush  Approach” ã OperationalRisknotcovered
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