Advance Risk Management Workshop: The World Bank, Washington DC

Practical challenges in implementing Credit and Market Risk

solutions and ways to solve them

Closed Loop. Clear Vision.

May 18, 2004

Arun PingaleySr. Solutions Architect

Reveleus – an i-flex business

Advance Risk Management Workshop: The World Bank, Washington DC

Agenda

• Preparations prior to implementing a credit or market risk solution

• Addressing Challenges• Data Management issues• Traceability issues for audit-ability• Adaptability issues for continuing changes to policies• Delivering a common solution for the risk management eco-system• Leveraging regulatory capital infrastructure for enhanced uses

• Economic Capital, RAROC and beyond

• Pre-requisites of a comprehensive solution

Advance Risk Management Workshop: The World Bank, Washington DC

Preparations prior to implementing a Credit or Market Risk solution

• Determine Scope of Final Solution• Identify Credit and / or Market Risk solutions to be

implemented• Identification of a Business Sponsor, if “not

regulatory”• Identify a Data Centric approach• Identification of a Project Team for implementation

• Risk Management resources• Technical resources

• Take stock of Technological Investments• To leverage current technology investments• To ensure future purchases support the final goal

• Never forget the Goal – Risk Management • All decisions should be towards THIS goal. • Technical decisions should not derail the project

Advance Risk Management Workshop: The World Bank, Washington DC

Challenges – Data Management Issues

• Identify Data Sources• Data layouts, elements, • Data transfer pipes

• Data frequency• Real Time • Periodic / Batch

• Data Quality• Identify data quality issues• Develop business rules to fix them• Impute for missing data

• Data Integration• Common codes

• Model Data for end-use• Prevent hijack of the data model • Delineate from Operational Data

• Test the Data

Advance Risk Management Workshop: The World Bank, Washington DC

Challenges – Traceability issues for Audit-ability

• Address Pillar II – Supervisory Oversight• Central Metadata Storage

• Technical definitions• Business definitions

• Link the definitions• Business definitions linked to technical definitions

• Link data model to data sources• Ability to browse metadata

• Business definitions • Tracing

• Parameterize transformations

Advance Risk Management Workshop: The World Bank, Washington DC

Challenges - Adaptability issues for continuing changes to policies

• Don’t forget Pillar III – Market Discipline• Parameterize the solution• Change is constant

• Business requirements• Source layouts• Data models

Advance Risk Management Workshop: The World Bank, Washington DC

Challenges – Delivering a common solution

• Risk Weighted Assets Calculations• Risk Rating• Value at Risk• Risk Analysis

• Concentration Analysis• Exposure and Collateral

• Rating Migration Analysis• Utilization Analysis• Aging, Recovery and Classification Analysis

• Simulations• Stress Testing• Back Testing

Advance Risk Management Workshop: The World Bank, Washington DC

Challenges – Leveraging Infrastructure

• Economic capital, • RAROC • Risk based pricing

Advance Risk Management Workshop: The World Bank, Washington DC

Pre-requisites of a comprehensive solution

• Data Quality• Data Integration• Central Metadata• Parameterized Computation Engines• Ease of Maintenance• Common Solution for all outputs

Advance Risk Management Workshop: The World Bank, Washington DC

Practical challenges in implementing Credit and Market Risk

solutions and ways to solve them

Closed Loop. Clear Vision.

May 18, 2004

Advanced Risk Management Workshop:Preston Auditorium, The World Bank

Washington D.C.16 – 21 May 2004