Use of Information System in Risk Management in Banking Industry

8/8/2019 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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Use of Information System in Risk Management in Banking Industry

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