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Risk management for financial institutions

A5: Risk management for financial institutions

Introduction

It is the responsibility of the top management of banks- just like the management of any other company- to increase profitability in order to meet the expectations of their shareholders, which are now much more skilled and careful in measuring their investment performance. Bank management may therefore get caught in a sort of “targets’ dilemma”: increasing capital profitability requires rising profits, which in turn calls for new businesses and hence new risks to be embraced. However, such an expansion, due to both economic and regulatory reasons, needs to be supported by more capital, which in turn calls for higher profitability. Such a dilemma may be solved in the short run by increasing profitability through slashing operational expenses and improving operational efficiency. In the long run, however, it requires that the risk-adjusted profitability of the bank’s different businesses be carefully assessed and optimized. This requires following three tools: (a) effective risk measurement and management system; (b) an effective capital allocation process; and (c) a set of organizational processes, measures, mechanisms that help different units of a bank to share the same value creation framework.

The Programme presents an integrated scheme for risk management, capital management and value creation. The programme will give adequate emphasis in describing, with the help of numerical examples and cases, various risk measurement concepts and models. The programme will start with defining individual risk elements of banks and financial institutions and then discuss external regulatory constraints in the form of minimum capital requirements. Finally, the programme will link risk management with value creation.

 

The programme introduces the implications of risk management on corporate strategy with an executive perspective on the Basel II accords and the appropriate regulatory calculations and value-at-risk techniques. The programme helps understand the role of liquidity risk and model risk in today’s environment and how firms should prepare for the confounding of risks while going forward.

Objectives

  • To introduce participants to the realm of risk management
  • To expose participants to various risk measurement models
  • To expose participants to the regulatory framework of risk management
  • To explain the linkage between risk management and shareholder value creation

 

Who should attend

  • Risk managers, Financial advisors and Consultants to the financial services industry
  • Members of banks, insurance and brokerage firms dealing with risk management topics (including senior management)
  • Operational risk teams
  • Basel II and regulatory teams of banks

Benefits

  • Clear, conceptual framework to identify and manage risk
  • Risk-based strategy for the enterprise
  • Ability to relate risk decision to capital allocation decisions
  • Understanding of the principles of credit, market, and operational risk
  • An overview of credit derivatives, CDOs and credit default swaps
  • Identify credit risk and understand counter party risk in credit derivatives
  • Best practices in the development and operation of risk offices, overseeing enterprise risk
  • A framework for dealing with risk in complex operations such as international supply chains and outsourced operations

Contents

 

  • Interest Rate Risk: Repricing Gap Model, Duration Gap Model, Cash Flow Mapping, Internal Transfer Rates
  • Market Risks- the Variance-Covariance Approach
  • Volatility estimation Models
  • Simulation Models
  • Value-at-risk(VaR) Models
  • Credit Risk- Credit Scoring Models, Capital Market Models, LGD and Recovery Risk, Portfolio Models
  • Operational Risks
  • Regulatory Capital Requirements
  • Capital Management and Value Creation
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