 |
|  |  |
|
|
|
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
|
The Annual Risk Management Conference! The Annual Risk Management Conference is scheduled for October 16-19, 2004, in Anaheim, California. Consumer Credit Risk Management. Balancing Growth and Risk Management: Getting to a Line/Credit Partnership. Pricing for Risk—Driving Profitability. How to Establish a Formal Risk Management Program in a Community Bank.Credit and Market Risk Convergence. Your practical and reliable source for Risk Management and Insurance information. There are currently 565 risk management articles contained on IRMI.com. Below are the most recent articles. Mike Rossi explains the impact of e-business activities on legal liability and first-party risks and identifies some of the ways these risks can be managed through indemnity and insurance provisions. Risk Management Internet Services. Resource for Enterprise Risk Management. The rmFamily of sites is dedicated to bringing internet technology to the risk management community. Instead of just talking the philosophy of Enterprise Risk Management, the rmFamily of sites delivers the basis and means to make it a reality. The rmFamily is dedicated to providing the complete internet environment for the risk management community. Search our database for answers to risk management questions
Risk Management Foundation of the Medical Institutions . Partners with State University's Risk Management and Insurance Program... 2004 Risk Management for Public Entities Tutorial & Test. Risk Management Overview. The SEI uses the Webster's definition of risk: Risk in itself is not bad; risk is essential to progress, and failure is often a key part of learning. But we must learn to balance the possible negative consequences of risk against the potential benefits of its associated opportunity. Risk Management is a software engineering practice with processes, methods, and tools for managing risks in a project. It provides a disciplined environment for proactive decision-making to: The SEI definition emphasizes the continuous aspect of risk management. There are seven principles which provide a framework for effective risk management: These principles are embodied within our risk management products and services which addresses the need to establish a baseline set of risks in a project or program (Software Risk Evaluation), the need to create and implement a continuous process for the effective management of risk (Continuous Risk Management), and the need to include all parts of the program (contractors, customers, etc.) in the joint management of risks (Team Risk Management). Risk Management Principles. Risk Management Products and Services. Risk Management Risk Management Frequently Asked Questions (FAQ)
Risk Management in action: Sharing members' experience. The Risk Forum is the UK's premier learning event for risk management professionals, and is attended by senior representatives of major businesses, public sector organisations, consultancies, charities and academics from around the world. For more information and the booking form see the Risk Forum page. The Institute of Risk Management. Risk appetite"; "Risk identification and risk workshops"; "Risk management with the regulator on your back "; "Corporate Governance and Regulatory update" ; " Embedding risk management". Risk Management as a Business Case. Business Risk Management - a 2 day course. This course provides both a theoretical and practical introduction to Business Risk Management for senior managers. The website Risk Management: risk management education; risk management courses; risk management qualifications; risk management jobs and vacancies; risk management careers
Capital Market Risk Advisors (CMRA) is the preeminent financial advisory firm specializing in risk management, hedge funds, due diligence, compliance, portfolio construction and risk attribution. CMRA and its predecessor firms have played an integral role in the evolution of hedge funds, derivatives, structured securities and risk management for more than 13 years.
Overview: Market Risk - From January 1st, 1998, internationally-active banks in G-10 countries had to maintain regulatory capital to cover market risk. This is the risk to an institution's financial condition resulting from adverse movements in the level or volatility of market prices of interest rate instruments, equities, commodities and currencies. Market risk is usually measured as the potential gain/loss in a position/portfolio that is associated with a price movement of a given probability over a specified time horizon. This is typically known as value-at-risk (VAR). An institution with a 10-day VAR of $100 million at 99% confidence will suffer a loss in excess of $100 million in one fortnightly period out of 20, and then only if it is unable to take any action to mitigate its loss. Financial institutions have always faced the risk of losses in on and off-balance-sheet positions arising from undesirable market movements.
But as a risk, market risk only gained a high profile when the Basle Committee on Banking Supervision published "The Supervisory Treatment of Market Risks" in April 1993. it was important because it sought, for the first time, to extend the 1988 Capital Accord for credit risks to incorporate market risks. This document put forward a standardised measurement framework to calculate market risk for interest rates, equities and currencies. For interest-rate related instruments and equities, this framework is based upon a "building-block approach" which differentiates capital requirements for specific risk from those for general market risk. The "Amendment to the Capital Accord to Incorporate Market Risks (1996)" is the Basle Committee's pronouncement on capital charges for market risk. It sets forth two approaches for calculating the capital charge to cover market risks; the standardised approach (similar to the framework discussed above) and the internal models approach. It must have an original maturity of at least two years and will be limited to 250% of the bank's Tier 1 capital that is allocated to support market risk. It is only eligible to cover market risk, including foreign exchange risk and commodities risk. A seminal regulatory document on market risk is the Basle Committee's "Proposal to Issue a Supplement to the Basle Capital Accord to cover Market Risks (1995)." This paper is significant because it marks a significant shift in thinking on the part of banking regulators. This proposal is the result of two years' dialogue between the regulatory community and the banking industry over the measurement of market risk (and resultant capital charges.) It represents a victory for the banking industry because the Basle Committee agreed to banks' requests that they be allowed to calculate market risk capital based on proprietary in-house models, rather than the standardised measurement framework mooted two years before. Winning over the Committee was not easy because each in-house market risk model is different and there is no definitive standard on the inputs into these models. By setting out its concerns and its reasons for recommending certain quantitative standards, the Basle Committee clearly explains some of the complex issues in the measurement of market risk. A paper entitled "An Internal Model-Based Approach to Market Risk Capital Requirements (1995)", explains the considerations which have to be borne in mind when specifying the risk factors in a market risk measurement system.
Although the Basle Committee has accepted the validity of using internal models to calculate market risk capital, it felt that potential weaknesses in these models had to be provided for in the capital charge. These weaknesses exist because: Supervisory Framework for the Use of "Backtesting" in Conjunction with the Internal Models Approach to Market Risk Capital. The Basle Committee conducted a survey of 40 banks in nine countries for the third and fourth quarters of 1998 to assess whether the internal models approach generated sufficient capital cover for market risk. Performance of Models-Based Capital Charges for Market Risk (1999)", But since VAR can only be used to manage market risk, and thus to calculate charges for market risk, the SEC has to look for additional methods to calculate capital for other risks such as credit, liquidity and operations. These haircuts, derived from multiplying the market value of the positions by prescribed percentages, are to afford protection from market risk, credit risk and other risks inherent in particular positions. The SEC puts forward a new way of calculating. For broker-dealers with large proprietary positions, the SEC is considering allowing them to use an internal or external model to calculate the market risk charge and to take a separate charge, or charges, for other types of risk, such as credit and liquidity risks. If a firm uses an internal model, the Commission, like the Basle Committee, would prescribe certain minimum quantitative and qualitative criteria. The SEC envisages the incorporation of models into capital calculations in two ways: This haircut would be similar but lower than the current haircut requirements because the additional charge for market risk would be obtained from a third component. The Supervisory Treatment of Market Risks. Proposal to Issue a Supplement to the Basle Capital Accord to cover Market Risks. An Internal Model-Based Approach to Market Risk Capital Requirements (1995). Amendment to the Capital Accord to Incorporate Market Risks. Supervisory Framework for the Use of "Backtesting" in Conjunction with the Internal Models Approach to Market Risk Capital Requirements (1996). The beta of a stock is a measure of how much market risk a stock faces. This volume contains papers produced for the Euro-currency Standing Committee in a joint effort by researchers at several central banks. The papers address measurement of market risk. When the papers in this volume were discussed by the Committee in May 1997, the Committee accepted the researchers' conclusion that this research did not establish an adequate technical basis or adequate justification for collecting aggregate market risk data
Operational Risk Management - Introduction to Operational Risk Management--Operational Risk Management Training Online. Operational Risk Consultancy exists to help clients establish or improve their operational risk management programmes. Operational Risk Consultancy provide clients with the software tools necessary to impose a disciplined approach to the management of operational risk. Quantify operational risks and, through financial modelling, calculate and allocate capital to reflect the differing degrees of risk within operating units and within the business as a whole. To support our software solutions we also offer clients a comprehensive operational risk management consultancy service delivered by experienced risk consultants and tailored to meet each client's particular requirements. The growing sophistication of the financial services industry has given rise to a diverse set of risks faced by banks, other than credit, interest rate and market risk, which can be grouped under the heading of ‘operational risk’. The Risk Management Group of the Basel Committee on Banking Supervision defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.” The following is a list of operational risk event types that the Basel Committee, in consultation with the industry, has identified as having the potential to result in substantial losses: Operational risk is every bank director's greatest fear. Huge financial losses and a damaged reputation could put an end to any manager's career. The biggest risk is of unauthorised trading. No bank wants its profile posted all over the newspapers. Some operational risk groups are struggling to make their remit clear. The role of operational risk groups can be hazy, as operational risks are too diverse to be managed by a single bank function. Some operational risk groups are struggling to make their remit clear and could be in danger of. Operational risk is still a new enough topic to keep practitioners arguing about how best to define, quantify and regulate it. Experts from seven leading financial institutions. The Basle Committee has addressed operational risk for the first time in its paper on a new capital adequacy framework. IBM has developed an innovative approach to operational risk management based on the business drivers and new regulatory proposals from Basel.Nasa has sharpened its focus on operational risk management. A number of approaches have developed for modelling operational risk. Niall O’Brien, Barry Smith and Morton Allen outline the options and discuss how they relate to risk management objectives such as. Financial institutions are developing formal organisational structures for operational risk. Banks are increasingly aware of the commercial significance of operational risk. Combined with interest from regulators and a desire to assess performance on a truly risk-adjusted basis, this has prompted them to invest in the development and implementation of new risk management practices.
Note that liquidity risk can enter into markets for financial instruments that are being sold en masse or that are being bought in a popular mania. In the latter case, it may be impossible to secure supply of the underlying stock, causing the stock's price to "gap" or jump at discrete, large intervals. Market commentators who label the current Internet sentiment as a mania have cited the gaps in trading in these stocks as evidence of the mania. Brokerage houses seeking to protect themselves from the unreliable liquidity in these markets have imposed restrictions on margin trading these stocks. The options dealer will face a liquidity vacuum in the spot market. He will need to buy US dollars against Canadian dollars aggressively as the Canadian dollar collapses. The kicker is that he will have a more difficult time doing so as the spot market dries up. He will have an even more difficult time hedging his exposures in the options market and the forward market. RISK HOLES AND LIQUIDITY RISK
Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden, unexpected cash outflows, or some other event causes counterparties to avoid trading with or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity. Liquidity risk tends to compound other risks. If a trading organization has a position in an illiquid asset, its limited ability to liquidate that position at short notice will compound its market risk. Suppose a firm has offsetting cash flows with two different counterparties on a given day. If the counterparty that owes it a payment defaults, the firm will have to raise cash from other sources to make its payment. Should it be unable to do so, it too we default. Here, liquidity risk is compounding credit risk. Obviously, a position can be hedged against market risk but still entail liquidity risk. It is debatable whether the hedge was effective from a market risk standpoint, but it was the liquidity crisis caused by staggering margin calls on the futures that forced Metallgesellschaft to unwind the positions.
Accordingly, liquidity risk has to be managed in addition to market, credit and other risks. Because of its tendency to compound other risks, it is difficult or impossible to isolate liquidity risk. In all but the most simple of circumstances, comprehensive metrics of liquidity risk don't exist. Certain techniques of asset-liability management can be applied to assessing liquidity risk. A simple test for liquidity risk is to look at future net cash flows on a day-by-day basis. Any day that has a sizeable negative net cash flow is of concern. Such an analysis can be supplemented with stress testing. Look at net cash flows on a day-to-day basis assuming that an important counterparty defaults. If an organization's cash flows are largely contingent, liquidity risk may be assessed using some form of scenario analysis. Construct multiple scenarios for market movements and defaults over a given period of time. Assess day-to-day cash flows under each scenario. Because balance sheets differed so significantly from one organization to the next, there is little standardization in how such analyses are implemented. Regulators are primarily concerned about systemic implications of liquidity risk.
Liquidity and the lack thereof is probably the risk that has traditionally received the least focus and yet has inflicted the greatest damage. Understanding the liquidity of a portfolio is a critical component of effective risk management. Unfortunately, in the case of the all too genuine complexities of hedge fund liquidity, the urge towards radical simplification has often proven an irresistible temptation. There are multiple facets to liquidity risk in a hedge fund: Evaluated market, credit, operational and liquidity risk management policies, practices and approach for an emerging market bank.
Liquidity risk is the risk of having insufficient cash to sustain normal business activity. It should be noted that liquidity risk carries different meanings depending on the risk taker. For a banker or a CFO, liquidity risk describes the risk of a sudden decrease in a cash balance. This is known as funding risk. On the other hand, a trader would associate liquidity risk with hedging or liquidating a position that is rapidly losing value. Such a case is an example of market liquidity risk. Liquidity Risk Management - Liquidity risk is an emerging topic in the financial risk world. Proper liquidity management is crucial as liquidity risk can compound the consequences of other risks. In particular, the effects of credit risk and market risk complications are multiplied when combined with liquidity risk. Conversely, other risks can lead to liquidity risk. For example, credit risk can cause funding problems. If a counterparty defaults, the firm in question may be deprived of cash earmarked for current operating expenses and liabilities.
To manage liquidity risk, a firm must be diligent in monitoring potential liquidity. Essential steps include closely noting cash flow, diversifying funding sources, and ensuring quick access to liquid assets. Liquidity risk should be estimated under potential stressed market conditions. "Stress-testing" a portfolio of assets can prepare a firm for possible liquidity problems. Unfortunately, stress-testing is not always adequate protection against a liquidity crisis, such as the one caused in 1998 as described in the case study above. Prices can fall too fast under these conditions for stress-testing to be applied.
The risk that arises from the difficulty of selling an asset. An investment may sometimes need to be sold quickly. Unfortunately, an insufficient secondary market may prevent the liquidation or limit the funds that can be generated from the asset. Some assets are highly liquid and have low liquidity risk (such as stock of a publicly traded company), while other assets are highly illiquid and have high liquidity risk (such as a house). Liquidity risk in the Integrated Prudential sourcebook: Systems and Controls chapter