Michel Zadoroznyj
Triple Point Technology, Inc.
Managing Dodd- Frank’s End-User Exemption
Passed as a response to the biggest financial crisis since the Great Depression, it is hardly surprising that the Wall Street Reform and Consumer Protection Act, more widely....
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Publications
Current Issue
In the cover story of our previous issue, we had focused on counterparty risk. Under Basel III, counterparty credit exposure is to be measured using credit valuation adjustment, which could be viewed as the cost of insuring a portfolio of trades with a specific counterparty against losses due to its default. In this issue, we present the recently issued consultative paper by Basel Committee on Banking Supervision on derecognition of debit valuation adjustment (DVA) for fair-valued over-the-counter (OTC) derivatives on account of bank’s own credit risk adjustments in the calculation of Common Equity Tier 1 capital. The cover story of this issue is based on the panel discussion on managing risks of innovative financial products in a conference on ‘Innovation, Risk, & Regulation’ conducted last month by us jointly with Indian Banks’ Association. The discussion, moderated by a treasury, market risk and liquidity management specialist from Ernst & Young, brings out the current state of the market risk and the liquidity risk measures and their adequate factoring in product pricing, issues in implementation of liquidity coverage ratio and net stable funding ratio prescribed under Basel III, and availability of derivatives as tools for hedging risk and treasury profits in Indian market. Experienced heads of market risk and treasury of leading private Indian banks and a specialist risk solution vendor share their insights in this discussion. A report on this conference also appears in this issue.
This issue also carries interview of an operational risk specialist of a public sector bank on advanced measurement approach of operational risk, its implementation and benefits.
RMANAGING RISKS of
INNOVATIVE FINANCIAL PRODUCTS
This is a lightly edited version of the discussion that took place in one of the sessions in the full-day conference on ‘Innovation, Risk & Regulation’organised by Indian Banks’ Association (IBA) and Finsight Media with Ernst & Young as the Knowledge Partner on December 7, 2011 at Mumbai-Ed.
Hemal Shah (partner, advisory practice, Ernst & Young): Innovation, Risk and Regulation are closely intertwined in financial markets. When the regulator permits any financial product, innovation, risk and regulation go hand in hand. But the reality is different. You innovate first, then come the risks, and then you start regulating and the cycle goes on. Ripujit, what is your view on the maturity of the market risk and the liquidity risk measures especially in the Indian context?
Ripujit Chaudhuri (general manager & head, market risk, ICICI Bank): If you look at the tools which are available for managing and monitoring market risk as well as liquidity risk, the basic tools are well-known and have been in existence for quite a long time. Let us start with the much maligned Value-at-Risk (VaR), which was perhaps the prime market risk management tool until the crisis hit us, and after which somehow it seems to have fallen hugely out of favour. Stress testing has taken the centre stage from VaR now. Every bank is at a different stage of implementation of both these measures and many other measures which exist. But,if you ask me the key areas….
MOODY'S ANALYTICS LAUNCHES
RISKAUTHORITY for BASEL III
Basel III implementation is a major challenge currently facing financial institutions worldwide.As banks, credit institutions and clearing houses are expected to be Basel III compliant before
2013, the market is huge and demand is growing for solutions that will help them manage their liquidity and risk appetite better. Against this backdrop, Moody’s Analytics has launched its regulatory capital management solution RiskAuthority.
Robert Dutcher, senior director, Product Marketing, Moody’s Analytics discusses the significant challenges that banks today are facing to keep up with the new regulations and highlights the product features and Moody’s business plans for Asia-Pacific region in an exclusive interview with CRO.
CRO: What according to you are going to be the new challenges that banks are likely to face with regulatory reforms like Basel III? How will this change the way banks manage their Risk & Compliance processes?
Dutcher: One of the biggest challenges will be meeting the new capital, leverage and liquidity ratios, which could have a large impact on banks’ business models and returns. On the implementation front, one of the biggest challenges is going to be integrating….
BROADRIDGE LAUNCHES PROACTIVE
FEE and COMMISSION MANAGER
The recent financial crisis and slow economic growth in developed countries have shifted focus of many financial institutions to emerging markets, which, in many ways, have increased demand for aggregation services and global commission management platforms in Asia, reveals a recent research paper‘Insights into Fee and Commission Management in Asia’, brought out by Broadridge Financial Solutions,a capital markets technology specialist. Commenting on the key drivers for its renewed focus in the Asia Pacific region, Mike West, vice president, International Marketing, Broadridge Financial Solution, says, ‘Broadridge has increased its investments in Asia over recent years, in response to greater market demand in the region for its multi-asset transaction processing The recent financial crisis and slow economic growth in developed countries have shifted focus of many financial institutions to emerging markets, which, in many ways, have increased demand for aggregation services and global commission management platforms in Asia, reveals a recent research paper‘Insights into Fee and Commission Management in Asia’, brought out by Broadridge Financial Solutions,a capital markets technology specialist. Commenting on the key drivers for its renewed focus in the Asia Pacific region, Mike West, vice president, International Marketing, Broadridge Financial Solution, says, ‘Broadridge has increased its investments in Asia over recent years, in response to greater market demand in the region for its multi-asset transaction processing solutions and shareholder communication solutions.’Last month, Broadridge Financial Solutions launched its PROactive Fee and Commission Manager solution in Asia-Pacific, which, it claims will help financial organisations including banks…
FIRST DATA UNVEILS
NEW PAYMENT GATEWAY
Atlanta, US headquartered First Data Corporation; provider of electronic commerce and payment solutions has launched Global Gateway e4. Phil Levy, vice president, eCommerce Operations, First Data Corp discusses the key features of the new Global Gateway e4 solution, First Data’s business plans and the changing landscape of eCommerce market in an exclusive email interview with CRO.
Below are the edited excerpts of the interview.
CRO: Recent studies reflect that the eCommerce market is expected to surge over the next few years globally. Has the finding of these surveys influenced your decision to launch the Global Gateway e4 solution?
Levy: We are very aware of market trends and the shift in consumer purchase habits from in-store to online. In developing the Global Gateway e4 solution we considered theses global shifts to ensure that we had capabilities that allowed merchants to scale and grow their business globally through….
ENTERPRISE RISK MANAGEMENT
A VITAL COG IN THE POST-CRISIS WORLD
Farrokh Tarapore, Partner, Financial Risk Advisory Services, Ernst & Young
The stature of risk management function has grown multifold in the post sub-prime crisis world.
From the standpoint of risk, arguably the most significant lesson, learnt the hard way, is that different risks seldom impact an organisation in isolation. They are often inter-related and even transform from one to another. In hindsight, it was the failure to recognise these inter-linkages among risks on banks’ part that compounded their problems and proved fatal in many cases. While many institutions had elaborate risk management procedures in place, these systems focused only on specific aspects of risk (such as credit, market, and operational risk) and therefore, did not enable the capability to view risk holistically.
But this aspect is now getting due attention. In an Ernst & Young survey on the changes to risk management practices in which 62 firms participated, 78 percent of respondents said they were at least halfway through an initiative to globalise risk systems. From an operational perspective, there is a need to question the tendency to see risk management as a support function; perhaps, a compliance requirement thrust upon them by conservative regulators. The key lesson here is to view risk management as an indispensable partner to drive sound business decision-making, and not just a support function. This is more relevant for banks and banking conglomerates, which have been at the....
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