Iannotta Nocera Sironi Ownership Structure Risk and Performance in the European Banking Industry
Use of Information System in Risk Management in Banking Industry
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Transcript of Use of Information System in Risk Management in Banking Industry
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By:-
Pranav Desai (10)
Akshay Goyal (16)
Abhishek Sahay (26)
Chirag Verma (37)
Sharmistha Sahoo (38)
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Liquidity
Risk Credit Risk
M rket Risk
Oper tion lRisk
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Liquidity is the ability topay, whether it is to pay abill, to give a depositortheir money, or to lend
money as part of a creditline
Customer demands forfunds are highlyunpredictable, especiallydemand deposits
Off-balance sheet risks,such as loancommitments, letters ofcredit
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Traditional bankingproducts
Loans
Commitments to lend
Letters of credit Traded products
OTC derivatives
Repos (and reverserepos)
Securities borrowing andlending
Plus settlement risk
Foreign exchange
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Greater profits can bemade by taking greaterrisks
Bank's leverage ratio islimited by law, but itcan try to earn greaterprofits by tradingsecurities
Rogue traders can causestupendous losses forbanks, even causingtheir bankruptcy
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Arises from faultybusiness practices,when property requiredto run the business are
damaged Also arises because of
unforeseen calamitiesEg.Banks in the vicinityof the World TradeCenter sufferedconsiderable losses as aresult of the terroristattacks on September,11, 2001
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Dealing with regulatory uncertainty. Multiple regulatory
proposals complicate planning as banks anticipate systemic reform.
Anticipating new capital requirements. Stricter regulatory
proposals are driving banks to reallocate capital, rebalance
portfolios and rethink market strategies.
Shifting the risk culture. Banks are strengthening their risk
culture and governance processes with more senior management
involvement and reinvigorated risk procedures.
Navigating the fluid economy. Uncertainty about the economy
poses a challenge to long-term and short-term planning.
Repairing the balance sheets. Many banks are still dealing with
fallout from the economic crisis.
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Basel norms Banking supervision accordsdeveloped by BCBS.
Formed in response to liquidation of
Herstatt bank.Developed in order to minimize the risks.
Basel I, II and III
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Basel I:
1. Round of deliberations by centralbankers in 1988.
2. inimal capital requirements forbanks.
3. Focus mainly on Credit Risk.
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Basel II:
1. Published in 2004 and animprovement over Basel I.
2. Separating operational and creditrisk and quantifying both.
3. Capital allocation more risksensitive.
4.
Encourage modern managementtechniques.
5. Still in implementation in somecountries.
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Basel II makes it mandatory to makesystem and processes compliant withstandards.
RBI guidelines to the banks forimplementation.
Pillar 1:
1. Calculation of capital ratio.
2. Permits the bank to choose betweentwo methods SA (Standardizedapproach)and IRB (Internal riskbased).
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Pillar 2:
1. Discusses key principle of supervisoryreview.
2. Supervisors are entitled to review andevaluate banks.
3. Banks are expected to hold excesscapital.
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Pillar 3:
1. Aims at market discipline.
2. Complement with pillars 1 and 2.
3. Encourages discipline by developing aset of disclosure requirements.
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OracleReveleus CURA DS
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Multi-jurisdictional
Reporting
Data GapAnalysisStudy
Data QualityChecks & GLReconciliation
Comprehensive
ApproachStressTesting
Coverage for
Pillar 2 andICAAP
Focus on theLong Term
Importanceof Domain
Expertise
Transparency, Auditability
andScalability
ActionableInsights intoEnterprise
Risk
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Built-i
r
siv l ul ti
s
Risk
g
tCust r
I
sig t
E
t r ris Fi
i lP rf r
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Uses anadvanced
datamanagement approachto provide a
fullytransparent"ready to go"
set ofadvanced
analyticalapplicationsthat
combine
Pre-builtdata
structures
Pre-packagedcomputati
onalengines
Pre-designed
informationdelivery
templates
Unifyingreferencelanguage
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Increase theaccuracy of
capitalcalculations for
estimation of PD,LGD, EAD, andallocation ofcredit risk
mitigants toexposures
Reducecompliance
complexity andcost through
greater readinessand easier
deployment
Cost-effectivelymodify rules
management tosuit the demands
of newjurisdictions,
changed businessneeds, or new
regulatoryrequirements
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achieve Basel IIcompliance in aquick, "de-risked"
manner
eliminates the needfor expensive custom
programming andtime-consuming
applicationmaintenance
drastically reducetheir time-to-
production
increasetheir
competitiveadvantage
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HDFC Bank ICICI BankUnion Bank
of IndiaAxis Bank
Citibank WachoviaWellsFargo
LloydsTSB
Bank ofontreal
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Subsidiary of SoftPro Systems, traded on Indias NSE &BSE Stock Exchanges.
Governance, enterprise wide risk management and
compliance (GRC)
Fast implementation, easier configurability and true
enterprise architecture. Established in 2001, Cura is used by over 250 customers
Thi ss, l ri l , W stfi l , V f l ,lli z, V/ i , l ithKli , t r
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Common risk language
Linking ER to strategy
Reporting
Accountability
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Manage risk within oneflexible, configurable
solution.
Deploy Easily and Quickly.
Obtain Clarity ThroughConvergence.
Work in Virtual Autonomy.
Invest for the future.
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ERMAdvisory.
advisory services and partners
best theory, practice, process and frameworks
Deployment.
the requisite skills
experience and handholding
Training.
user guides and system manual
on premise and off premise training
Video tutorials
Ongoing Support.
local and global support options
TQM: regular health checks and quality assurance.
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EnforceAccountability.
Link risk
managementto decision
making.
Embed andintegrate risk
management inbusiness
rocesses.
Communicaterisk and risktreatment
widely.
Manageorgani
ational
and individual erformance
for ERM.
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A
DVAN
TAGE
S
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Huge Challenge for Implementationof Basel II Mandate
Business dividedinto Global
Consumer, GlobalWealth
Management, andCorporate and
Investment Banking
More than 200million customers
across 100countries
Turnover of Morethan $ 1 trillion
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Meet Acceptance criterion set by Citigroup Board
Separate Route for Basel II compliance for separate geographical locationdepending on local jurisdiction
Some Jurisdictions hadnt defined the compliance norms
The Deadline for Implementation of Basel II norms in USA was January 1,2008
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Reveleus
ComprehensiveSupport for Basel II
framework
Architecture
Flexibility includingcompliance withalready existing
Citigroup standardsand tools
Scalability toaddress Global
Rollout
Transparency &Traceability
Security
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Installation across countries and regions inconsolidated phases
Separate Instances for Investment CorporateBanking and Consumer Retail Banking
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Pilotimplementation
on IndividualProducts in USA
CompleteImplementationof SecuritizedNon SecuritizedExposures andrelated Basel II
implementationsin USA
Capturing
Nationaldiscretionsrequired in each
jurisdictiondefining rulesmeeting local
reportingrequirements
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As and when the local jurisdiction decide andpublish the applicable rules, Reveleus willprovide to these standardized rules toCitigroup out of the box
Concurrent Computation of Capital usingmultiple approaches of Risk Management canbe easily done and compared on periodicbasis.
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