DOCSLIB.ORG

Credit Risk Measurement in and out of the Financial Crisis E1FFIRS 02/27/2010 1:15:59 Page 2

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Credit Risk Measurement in and out of the Financial Crisis E1FFIRS 02/27/2010 1:15:59 Page 2 E1FFIRS 02/27/2010 1:15:59 Page 1 Credit Risk Measurement In and Out of the Financial Crisis E1FFIRS 02/27/2010 1:15:59 Page 2 Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Aus- tralia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more. For a list of available titles, please visit our Web site at www.Wiley Finance.com. E1FFIRS 02/27/2010 1:15:59 Page 3 Credit Risk Measurement In and Out of the Financial Crisis New Approaches to Value at Risk and Other Paradigms Third Edition ANTHONY SAUNDERS LINDA ALLEN John Wiley & Sons, Inc. E1FFIRS 02/27/2010 1:15:59 Page 4 Copyright # 2010 by Anthony Saunders and Linda Allen. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Saunders, Anthony, 1949- Credit risk management in and out of the financial crisis : new approaches to value at risk and other paradigms / Anthony Saunders, Linda Allen. — 3rd ed. p. cm. — (Wiley finance series) Rev. ed. of: Credit risk measurement. 2nd ed. c2002. Includes bibliographical references and index. ISBN 978-0-470-47834-9 (cloth) 1. Bank loans. 2. Bank management. 3. Credit—Management. 4. Risk management. I. Allen, Linda, 1954- II. Saunders, Anthony, 1949- Credit risk measurement. III. Title. HG1641.S33 2010 0 332.1 20684—dc22 2009044765 Printed in the United States of America 10987654321 E1FTOC 03/15/2010 16:45:21 Page 5 Contents List of Abbreviations xi Preface xv PART ONE Bubbles and Crises: The Global Financial Crisis of 2007–2009 CHAPTER 1 Setting the Stage for Financial Meltdown 3 Introduction 3 The Changing Nature of Banking 3 Reengineering Financial Institutions and Markets 17 Summary 21 Appendix 1.1: Ratings Comparisons for the Three Major Rating Agencies 23 CHAPTER 2 The Three Phases of the Credit Crisis 24 Introduction 24 Bursting of the Credit Bubble 24 Phase 1: Credit Crisis in the Mortgage Market 29 Phase 2: The Crisis Spreads—Liquidity Risk 33 Phase 3: The Lehman Failure—Underwriting and Political Intervention Risk 37 Summary 43 CHAPTER 3 The Crisis and Regulatory Failure 45 Introduction 45 Crisis Intervention 45 v E1FTOC 03/15/2010 16:45:21 Page 6 vi CONTENTS Looking Forward: Restructuring Plans 52 Summary 64 PART TWO Probability of Default Estimation CHAPTER 4 Loans as Options: The Moody’s KMV Model 67 Introduction 67 The Link between Loans and Options 67 The Moody’s KMV Model 70 Testing the Accuracy of EDFTM Scores 74 Critiques of Moody’s KMV EDFTM Scores 86 Summary 93 Appendix 4.1: Merton’s Valuation Model 93 Appendix 4.2: Moody’s KMV RiskCalcTM 95 CHAPTER 5 Reduced Form Models: Kamakura’s Risk Manager 98 Introduction 98 Deriving Risk-Neutral Probabilities of Default 99 Generalizing the Discrete Model of Risky Debt Pricing 102 The Loss Intensity Process 105 Kamakura’s Risk Information Services (KRIS) 108 Determinants of Bond Spreads 110 Summary 114 Appendix 5.1: Understanding a Basic Intensity Process 114 CHAPTER 6 Other Credit Risk Models 117 Introduction 117 Credit Scoring Systems 117 Mortality Rate Systems 121 Artificial Neural Networks 125 Comparison of Default Probability Estimation Models 127 Summary 131 E1FTOC 03/15/2010 16:45:21 Page 7 Contents vii PART THREE Estimation of Other Model Parameters CHAPTER 7 A Critical Parameter: Loss Given Default 135 Introduction 135 Academic Models of LGD 135 Disentangling LGD and PD 142 Moody’s KMV’s Approach to LGD Estimation 143 Kamakura’s Approach to LGD Estimation 146 Summary 146 CHAPTER 8 The Credit Risk of Portfolios and Correlations 148 Introduction 148 Modern Portfolio Theory (MPT): An Overview 149 Applying MPT to Nontraded Bonds and Loans 150 Estimating Correlations across Nontraded Assets 152 Moody’s KMV’s Portfolio Manager 153 Kamakura and Other Reduced Form Models 161 Summary 165 PART FOUR Putting the Parameters Together CHAPTER 9 The VAR Approach: CreditMetrics and Other Models 169 Introduction 169 The Concept of Value at Risk 170 Capital Requirements 177 Technical Issues and Problems 180 The Portfolio Approach in CreditMetrics 184 Summary 195 Appendix 9.1: Calculating the Forward Zero Curve for Loan Valuation 195 Appendix 9.2: Estimating Unexpected Losses Using Extreme Value Theory 200 E1FTOC 03/15/2010 16:45:21 Page 8 viii CONTENTS Appendix 9.3: The Simplified Two-Asset Subportfolio Solution to the N-Asset Portfolio Case 202 Appendix 9.4: CreditMetrics and Swap Credit Risk 202 CHAPTER 10 Stress Testing Credit Risk Models: Algorithmics Mark-to-Future 208 Introduction 208 Back-Testing Credit Risk Models 209 Using the Algorithmics Mark-to-Future Model 215 Stress Testing U.S. Banks in 2009 220 Summary 227 CHAPTER 11 RAROC Models 228 Introduction 228 What Is RAROC? 228 RAROC, ROA, and RORAC 229 Alternative Forms of RAROC 230 The RAROC Denominator and Correlations 235 RAROC and EVA 238 Summary 238 PART FIVE Credit Risk Transfer Mechanisms CHAPTER 12 Credit Derivatives 243 Introduction 243 Credit Default Swaps 244 Credit Securitizations 259 Financial Firms’ Use of Credit Derivatives 269 CDS Spreads and Rating Agency Rating Systems 269 Summary 271 Appendix 12.1: Pricing the CDS Spread with Counterparty Credit Risk Exposure 272 E1FTOC 03/15/2010 16:45:21 Page 9 Contents ix CHAPTER 13 Capital Regulation 274 Introduction 274 The 2006 Basel II Plan 275 Summary 296 Appendix 13.1: Loan Rating Systems 297 Notes 303 Bibliography 341 Index 365 E1FTOC 03/15/2010 16:45:21 Page 10 E1FBETW 03/17/2010 9:38:54 Page 11 List of Abbreviations ABCP asset-backed commercial paper ABS asset-backed security AE average exposure AMA advanced measurement approach ARM adjustable rate mortgage ARS adjusted relative spread ABX index of mortgage-backed security values BHC bank holding company BIS Bank for International Settlements BISTRO Broad Index Secured Trust Offering BRW benchmark risk weight BSM Black-Scholes-Merton Model CAPM capital asset pricing model CBOE Chicago Board Options Exchange CDO collateralized debt obligation CDS credit default swap CFTC Commodity Futures Trading Commission CIO collateralized insurance obligation CLN credit-linked note CLO collateralized loan obligation CMO collateralized mortgage obligation CMR cumulative mortality rate CRE commercial real estate CS credit spread CSFP Cre´dit Suisse Financial Products CVR contingent value rights CWI creditworthiness index xi E1FBETW 03/17/2010 9:38:55 Page 12 xii LIST OF ABBREVIATIONS CYC current yield curve DD distance to default DM default mode model EAD exposure at default EBITDA earnings before interest, taxes, depreciation, and amortization EC European Community ECA Export Credit Agency EDF expected default frequency EDP estimated default probability EE expected exposure EL expected losses EVA economic value added EVT extreme value theory FA foundation approach FAS Financial Accounting Standard FASB Financial Accounting Standards Board FD fair disclosure FDIC Federal Deposit Insurance Corporation FNMA Federal National Mortgage Association FHFA Federal Housing Finance Agency FIs financial
Load more

Recommended publications
  • Basel Violations, Volatility Model Variants and Value at Risk: Optimization of Performance Deviations in Banks
    Economics and Business Letters 10(3), 240-248, 2021 Basel violations, volatility model variants and value at risk: Optimization of performance deviations in banks Shahid Anjum1,* • Naveeda Qaseem2 1Universiti Teknologi Brunei, Brunei Darussalam 2University of Westminster, United Kingdom Received: 26 October 2020 Revised: 12 February 2021 Accepted: 14 February 2021 Abstract Basel penalties originate from VaR violations, based on the type of variance models and the estimation of VaR thresholds employed by the bank, which leads to excess regulatory capital charge held and can affect banks’ risk taking ability and thus its profitability. Different approaches are used to evaluate the performance of variance models and forecasts of the VaR thresholds i.e. hypothesis tests, back-testing procedures and Basel Accord regulatory calculations for penalty zones. A multi-criteria performance measure named as analytical hierarchy process has been introduced in this study. The approach helps in evaluating and selection of the optimal internal model based on performance evaluation techniques objectively which, in turn, may help in the selection of best volatility internal model for reduction in the VaR violations and thus leaving more capital in the hands of the banks for profitable ventures. Keywords: volatility models; value at risk estimation and performance measures; multivariate techniques; multi-criteria decision making JEL Classification Codes: G21, K23, M16, N20, O16 1. Introduction Volatility is the focus of market risk measurement, management and reporting exercises. Measuring the variance or volatility of the market portfolio is at the heart of measuring VaR threshold for the capital charge of market risk (Bhandari; 2010; Dardac et el.; 2011 & Mehta et el.; 2012) and thus banks’ compliance with Basel regulations (Anjum; 2018).
    [Show full text]
  • Point-In-Time Versus Through-The-Cycle Ratings 1
    Point-in-Time versus Through-the-Cycle Ratings 1 Authors: Scott D. Aguais, Lawrence R. Forest, Jr., Elaine Y. L. Wong, Diana Diaz-Ledezma 2 1 The authors would like to acknowledge the many Basel and credit risk related discussions they have had with various members of the Barclays Risk Management Team over the last year. The authors also want to thank, Tim Thompson, Julian Shaw and Brian Ranson for helpful comments. Moodys|KMV also deserves thanks for providing an historical data set of five-year KMV EDF term structures for all of their counterparties. Finally, we thank Zoran Stanisavljevic, for his un-ending credit data management support for our credit research and modelling efforts. All errors remain the responsibility of the authors. The views and opinions expressed in this chapter are those of the authors and do not necessarily reflect the views and opinions of Barclays Bank PLC. 2 Scott Aguais is Director and Head of Credit Risk Methodology. Lawrence Forest and Elaine Wong are Associate Directors, and Diana Diaz-Ledezma is a Manager, all on the Credit Risk Methodology Team. All four work at Barclays Capital, the Investment Banking unit of Barclays. Draft – For Discussion Purposes Only I. Introduction: To qualify for the advanced internal ratings-based (AIRB) status under the Basel II Capital Accord, “internationally active banks” (“banks”) must document the validity not only of their probability of default (PD) estimates but also of the Loss Given Default (LGD) and Exposure at Default (EAD) measures that they plan to use as alternatives to the foundation internal ratings-based (FIRB) assumptions.
    [Show full text]
  • Systematic Risk of Cdos and CDO Arbitrage
    Systematic risk of CDOs and CDO arbitrage Alfred Hamerle (University of Regensburg) Thilo Liebig (Deutsche Bundesbank) Hans-Jochen Schropp (University of Regensburg) Discussion Paper Series 2: Banking and Financial Studies No 13/2009 Discussion Papers represent the authors’ personal opinions and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Editorial Board: Heinz Herrmann Thilo Liebig Karl-Heinz Tödter Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Postfach 10 06 02, 60006 Frankfurt am Main Tel +49 69 9566-0 Telex within Germany 41227, telex from abroad 414431 Please address all orders in writing to: Deutsche Bundesbank, Press and Public Relations Division, at the above address or via fax +49 69 9566-3077 Internet http://www.bundesbank.de Reproduction permitted only if source is stated. ISBN 978-3–86558–570–7 (Printversion) ISBN 978-3–86558–571–4 (Internetversion) Abstract “Arbitrage CDOs” have recorded an explosive growth during the years before the outbreak of the financial crisis. In the present paper we discuss potential sources of such arbitrage opportunities, in particular arbitrage gains due to mispricing. For this purpose we examine the risk profiles of Collateralized Debt Obligations (CDOs) in some detail. The analyses reveal significant differences in the risk profile between CDO tranches and corporate bonds, in particular concerning the considerably increased sensitivity to systematic risks. This has far- reaching consequences for risk management, pricing and regulatory capital requirements. A simple analytical valuation model based on the CAPM and the single-factor Merton model is used in order to keep the model framework simple.
    [Show full text]
  • Hong Leong Finance Chooses Kamakura's Suite of Solutions For
    Press Contacts: 2222 Kalakaua Avenue, 14th Floor Martin Zorn Honolulu, Hawaii 96815, USA President and COO Telephone 808 791 9888 1-808-791-9888, extension 8700 Fax 808 791 9898 [email protected] www.kamakuraco.com www.kamakuraco.com www.kris-online.com For Immediate Release Hong Leong Finance Singapore Chooses Kamakura’s Suite of Solutions for Asset and Liabilities Management, Funds Transfer Pricing, and Liquidity Management SINGAPORE, Nov 14, 2017 - Hong Leong Finance has signed an agreement to use Kamakura Corporation’s set of solutions for its balance sheet management, funds transfer pricing, and liquidity management processes. The Singapore-listed finance company, part of the Hong Leong Group Singapore, made its decision after doing a comprehensive upgrade exercise involving its risk management processes. “Hong Leong Finance was clear in its risk vision, and wanted to incorporate an integrated framework for balance sheet management, funds transfer pricing and liquidity management initiatives,” said Dr. Clement Ooi, Kamakura’s EVP and Managing Director of Asia-Pacific Operations. “They wanted to load the data once, and reconcile the data once. Kamakura Corporation’s solution fit the bill perfectly, providing the company with an accurate assessment of transaction cashflows that can then be used for gap, duration, and mismatch management, as well providing a crystal-clear understanding of the margins associated with transactions. The company now has an integrated, holistic computation engine—the platform upon which it will build its integrated risk framework. The company will be one of the first to generate both historical and forward-looking views of its balance sheet and gain a transaction-level understanding of profit margins.
    [Show full text]
  • Risk Management & Trading Conference
    RiskMathics, aware that the most important factors to develop and consolidate the Financial WHO SHOULD ATTEND? Markets are training and promoting a high level financial culture, will host for the third time in The Risk Management & Trading Conference is aim at Practitioners directly or indirectly involved Mexico: “The Risk Management & Trading Conference”, which will have the participation of in areas of trading, risk management, regulation, technology, and research & development of leading authorities who have key roles in the global financial industry. Stock Exchanges, Brokers, Brokerage Houses, Banks, Institutional Investors (Pension Funds, OBJECTIVES Mutual Funds, Insurance Companies, etc.), Hedge Funds, and Independent Investors. One of the primary objectives of this Conference is to provide through Workshops, Presentations It will be of particular relevance to: and Round Table Discussions the latest advances in Risk Management, Trading, Technology • Chief Executive Officers of financial institutions and intermediaries and Market Regulation, and to transmit all this knowledge by local and international authorities • Traders in the field. • Risk Managers Some other objectives of this Conference are to explain and show in detail the current • Consultants situation and where the Global Financial Industry is heading, advances in Pricing, and how • Regulators intermediaries and direct or indirect participants of markets need to be prepared to remain • Technology managers and staff competitive in spite of the new challenges and paradigms
    [Show full text]
  • Conference Overview
    Conference Overview Attend the First International Model Risk Management Conference and hear from thought leaders and today’s leading practitioners working in the areas of model development, validation, and audit or using models and their outputs. Sessions include discussions of risk topics and challenges across a broad spectrum of industries. The Conference will also support the development of professionalism and best practices among Model Risk Management (MRM) practitioners working in the regulated financial industry across sectors and geographies. Through presentations and discussions, the Conference aims to strengthen industry and regulatory MRM practice, grow and develop the current and next generation of MRM practitioners and facilitate the incorporation of best practices across industries. Tailored to address critical issues arising from global financial services regulation as well as emerging issues, the Conference will provide a thorough understanding of regulatory requirements and their impact on the leading MRM practices. The Conference will achieve these outcomes by providing relevant, meaningful and useful content that can be taken away and put into practice. Audience participation and collaboration is encouraged. This two day Conference runs from 8:00 a.m. till late afternoon each day including lunch as well as morning and afternoon breaks. Opening remarks by Jamey Hubbs, Assistant Superintendent Deposit-Taking Supervision Sector, OSFI. Sponsors NETWORKING RECEPTION SPONSOR Scotiabank is Canada’s international bank and a leading financial services provider in North America, Latin America, the Caribbean and Central America, and parts of Asia. Scotiabank is helping our 21 million customers become better off through a broad range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking.
    [Show full text]
  • Despite Dodd-Frank, Credit Rating Agencies Remain the Financial System's Weakest Link
    Reason Foundation Policy Study No. 460 February 2018 Unfinished Business: Despite Dodd-Frank, Credit Rating Agencies Remain the Financial System’s Weakest Link by Marc Joffe Reason Foundation Reason Foundation’s mission is to advance a free society by developing, applying and promoting libertarian principles, including individual liberty, free markets and the rule of law. We use journalism and public policy research to influence the frame- works and actions of policymakers, journalists and opinion leaders. Reason Foundation’s nonpartisan public policy research promotes choice, compe- tition and a dynamic market economy as the foundation for human dignity and progress. Reason produces rigorous, peer-reviewed research and directly engages the policy process, seeking strategies that emphasize cooperation, flexibility, local knowl- edge and results. Through practical and innovative approaches to complex problems, Reason seeks to change the way people think about issues, and promote policies that allow and encourage individuals and voluntary institutions to flourish. Reason Foundation is a tax-exempt research and education organization as defined under IRS code 501(c)(3). Reason Foundation is supported by voluntary contribu- tions from individuals, foundations and corporations. The views are those of the author, not necessarily those of Reason Foundation or its trustees. Photo credit: © Nobeastsofierce | Dreamstime Copyright © 2018, Reason Foundation. All rights reserved. Reason Foundation Unfinished Business: Despite Dodd-Frank, Credit Rating Agencies Remain the Financial System’s Weakest Link by Marc Joffe Executive Summary The credit rating business began in the early 20th century when John Moody and his competitors started publishing letter grades in the corporate and municipal bond manuals they marketed to investors.
    [Show full text]
  • IPS-Sendero Unit of Fiserv Hosts EMEA Path 2005 Conference in Nice, France March 7-10
    March 3, 2005 IPS-Sendero Unit of Fiserv Hosts EMEA Path 2005 Conference in Nice, France March 7-10 Event to Focus on Enterprise Risk Management and Profitability Issues for Financial Institutions ATLANTA & LONDON--March 3, 2005--IPS-Sendero, a unit of Fiserv, Inc. (Nasdaq:FISV) and a provider of technology solutions and education for enterprise risk and corporate performance management, will host the annual Europe, Middle East and Africa (EMEA) Path 2005 Conference in Nice, France March 7-10. The conference will focus on compliance with Basel II and IAS 39, global asset/liability management concepts, enterprise risk management strategies and corporate performance management techniques for financial institutions. Dr. Donald R. van Deventer, chairman of Kamakura Corporation, IPS-Sendero's strategic enterprise risk management partner, will be the event's headline presenter. Other featured speakers will include Geoff Kates, managing director of Lepus Ltd., and executives of Logica CMG, Northern Rock plc, Bank Austria Creditanstalt, Riyad Bank and Central- European International Bank (CIB). The event will offer attendees unique networking opportunities with banking peers, industry leaders and IPS-Sendero professionals. Session topics will include practical use of credit risk models; trends in liquidity risk management; modeling correlated default in an integrated risk management framework; managing and improving customer profitability, Basel II - Pillars I and II; and modeling credit risk, market risk and ALM in a Basel II framework. "IPS-Sendero is proud to present this year's EMEA Path Conference as a valuable educational resource and networking opportunity for participants who are looking to expand their perspective and develop strategies and solutions to affect their organization's growth and profitability," said Nigel Sirett, managing director EMEA, IPS-Sendero.
    [Show full text]
  • RISK AMERICAS | 9TH ANNUAL | SEPTEMBER 2-3, 2020 | NEW YORK CITY SUPER EARLY BIRD RATE from $999* Register by July 3
    RISK AMERICAS | 9TH ANNUAL | SEPTEMBER 2-3, 2020 | NEW YORK CITY SUPER EARLY BIRD RATE FROM $999* Register by July 3 TOPICS ADDRESSED FOR 2020: KEYNOTE SESSIONS Risk appetite | Role of the CRO | ESG | Geopolitical risk | RISK AMERICAS Challenges of viewing risk | Has regulation gone too far? INNOVATION IN RISK MANAGEMENT 9TH ANNUAL | SEPTEMBER 2-3, 2020 | NEW YORK CITY Automation & efficiency | FinTech | Client experience | AI & machine learning | RegTech | Blockchain | Data | Disruption | Cloud | Privacy AMERICA’S PREMIER FINANCIAL RISK AND INNOVATION CONVENTION 2020 NEW FOR 2020: NON-FINANCIAL RISK AND RESILIENCE Cyber risk | Technology resilience | Risk ID | Operational resilience | Culture | AML | Fraud | Payments | HEAR FROM MORE THAN 100 CROS AND HEADS OF RISK INCLUDING: Risk analytics and more... Bill Coen Former Secretary MARKET TRENDS AND FINANCIAL RISK Nicholas Silitch Anthony Peccia Michael Alix General, Basel Interest rate risk | Economic downturn | Repo markets | Group CRO Chief Risk Officer Americas CRO Committee on IBOR | FRTB | Climate change | Liquidity risk | CECL | Prudential Citibank Canada UBS Banking Bond markets | Capital management and more... Supervision, & MODEL RISK MANAGEMENT Chair, IFRS Advisory Model definition | Model inventory | Quantification | Council Enterprise MRM | Validation | Advanced analytics | Data | John Schiavetta AI & machine learning | Machine bias and more... Deputy Chief Risk Vivek Tyagi Geoff Craddock Judith Hilton CRO - Transaction Officer SEPARATELY BOOKABLE - NEW FOR 2020 CRO CRO Banking Alliance IBOR TRANSITION | September 1 Mass Mutual DWS Americas Goldman Sachs Bernstein Exploring developments, progress and challenges ahead of IBOR transition Institutions speaking include: ARRC, Morgan Stanley, Jacques Longerstaey Tatiana Segal Tom Wipf TD Securities, BNY Mellon, Bank of America, JP Morgan, Vice Chairman SMD, CRO, Nuveen Oliver Jakob CRO Wells Fargo and more...
    [Show full text]
  • GARP's Monthly NEWSLETTER June 2005 • Basel II Survey
    GARP's Monthly NEWSLETTER June 2005 • Basel II Survey: Opinions Wanted! • GARP Appoints New RDs in Four Locations • Coming Soon: GARP's Annual Asia-Pacific Convention • GARP Risk Review: May/June Issue Now Live • Upcoming Events: 2005 Training Courses and Panels • Career Center Adds More Enhancements • Letters to the Editor: Searching for GRR Feedback • Advertisements GARP’s Online Basel II Survey GARP's membership-driven survey on Basel II is now live at www.garp.com/survey. Please let us know your views: it will take no more than five minutes to complete. The survey asks important questions about how prepared firms are in handling the new Basel accord, tackling key issues such as technology deployment, costs, measurement strategies and the impact of Basel II. The results of the survey – sponsored by SunGard –will be published in GARP's July newsletter. Individual responses will be kept confidential. After you have completed this month's survey, you may want to take a look at the results of last year's Basel II survey www.garp.com/surveysandresearch/Response/Jan2004.asp). We are interested in the views of all risk management practitioners, so feel free to forward this email to your colleagues. All registrants also have the opportunity to request a complimentary copy of SunGard’s Basel II CD. We look forward to reading your opinions, and thank you in advance. Click here to participate: www.garp.com/survey. GARP Names Regional Directors in Four Locations GARP’s board of trustees has appointed new regional directors in Washington DC, Alberta (Canada), Spain and New Zealand.
    [Show full text]
  • Operational Risk
    Operational Risk Robert A. Jarrow ∗ May 18, 2006 Abstract This paper studies operational risk. We discuss its economic and math- ematical characterization and its estimation. The insights for this char- acterization originate in the corporate finance and credit risk literature. Operational risk is of two types, either (i) the risk of a loss due to the firm’s operating technology, or (ii) the risk of a loss due to agency costs. These two types of operational risks generate loss processes with completely different characteristics. The mathematical characterization of these op- erational risks is modeled after the risk of default in the reduced form credit risk literature. We show that although it is conceptually possible to estimate the operational risk processes’ parameters using only market prices, the non-observability of the firm’s value makes this an unlikely possibility, except in rare cases. Instead, we argue that data internal to the firm, in conjunction with standard hazard rate estimation procedures, provides a more fruitful alternative. Finally, we show that the inclusion of operational risk into the computation of fair economic capital (as with revised Basel II) without the consideration of a firm’s NPV, will provide biased (too large) capital requirements. ∗Johnson Graduate School of Management, Cornell University, Ithaca, New York, 14853 and Kamakura Corporation. email: [email protected]. This research was funded by a Q- Group Research Grant. Helpful comments from Nicholas Kiefer, Philip Protter and Stuart Turnbull are gratefully acknowledged. 1 Operational Risk 1Introduction Risk management concerns the investigation of four significant risks of a loss to a firm or portfolio: market risk, credit risk, liquidity risk, and operational risk (see Jarrow and Turnbull [13], p.
    [Show full text]
  • 7535-01-U NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Parts 702, 703, 704, 709, and 747 RIN 3133-AD58 Corporate Credit Unions A
    7535-01-U NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Parts 702, 703, 704, 709, and 747 RIN 3133-AD58 Corporate Credit Unions AGENCY: National Credit Union Administration (NCUA). ACTION: Final rule. SUMMARY: NCUA is issuing final amendments to its part 704 rule governing corporate credit unions. The major revisions involve corporate credit union capital, investments, asset-liability management, governance, and credit union service organization (CUSO) activities. The amendments establish a new capital scheme, including risk-based capital requirements; impose new prompt corrective action requirements; place various new limits on corporate investments; impose new asset-liability management controls; amend some corporate governance provisions; and limit a corporate CUSO to categories of services preapproved by NCUA. In addition, this rulemaking contains conforming amendments to part 702, Prompt Corrective Action (for natural person credit unions); part 703, Investments and Deposit Activities (for federal credit unions); part 747, Administrative Actions, Adjudicative Hearings, Rules of Practice and Procedure, and Investigations; and part 709, Involuntary Liquidation of Federal Credit Unions and Adjudication of Creditor Claims Involving Federally Insured Credit Unions. These amendments will strengthen individual corporates and the corporate credit union system as a whole. 1 DATES: This rule is effective [INSERT DATE 90 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. FOR FURTHER INFORMATION CONTACT: David Shetler, Deputy Director, Office of Corporate Credit Unions, at telephone (703) 518-6640, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314; Ross Kendall, Staff Attorney, Office of General Counsel, at the address above or telephone (703) 518-6540; or Paul Peterson, Associate General Counsel, at the address above or telephone (703) 518-6540.
    [Show full text]