Risk Management At The Top E-Book

Mark Laycock

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Series
• Sprache: Englisch

Seitenzahl: 483

Veröffentlichungsjahr: 2014

Beschreibung

With over 30 years’ experience of risk management in banks, Mark Laycock provides a comprehensive but succinct non-technical overview of risk and its governance in financial institutions. Bridging the gap between texts on governance and the increasingly technical aspects of risk management the book covers the main risk types experienced by banks – credit, market, operational and liquidity - outlines those risks before considering them from a governance perspective including the Board and Executive Management.

Addressing terminology issues that can confuse dialogue, and by providing a bibliography alongside each chapter for more detailed discussion of the topic this book will ground readers with the knowledge they require to understand the unknown unknowns.

Leseprobe

Contents

About the Author

1 Introduction

1.1 INTRODUCTION

1.2 BOARDS

1.3 WHY NOW?

1.4 REST OF THE BOOK

FURTHER READING

Part I: Risk Oversight

2 Risk – An Overview

2.1 TERMINOLOGY

2.2 ROLE OF BANKS AND RISK

2.3 SOURCES OF RISK AND UNCERTAINTY

2.4 CAPITAL

2.5 ISSUES TO CONSIDER

FURTHER READING

3 Risk Oversight

3.1 INTRODUCTION

3.2 PERSPECTIVE

3.3 MODELS

3.4 RISK FRAMEWORK

3.5 BIASES

3.6 ISSUES TO CONSIDER

FURTHER READING

4 Risk Management

4.1 INTRODUCTION

4.2 TERMINOLOGY AND COMPONENTS

4.3 RISK MANAGEMENT CYCLE

4.4 ISSUES TO CONSIDER

FURTHER READING

5 Risk Appetite

5.1 INTRODUCTION

5.2 TERMINOLOGY AND CONCEPT

5.3 STAKEHOLDERS

5.4 EXPRESSIONS OF RISK APPETITE

5.5 FRAMEWORK

5.6 RISK REPORTING

5.7 ISSUES TO CONSIDER

FURTHER READING

6 Risk Culture

6.1 INTRODUCTION

6.2 TERMINOLOGY

6.3 ASSESSING AND INFLUENCING RISK CULTURE

6.4 MONITORING RISK CULTURE

6.5 ISSUES TO CONSIDER

FURTHER READING

Part II: Specific Risks

7 Credit Risk

7.1 INTRODUCTION

7.2 DEFINITION OF CREDIT RISK

7.3 FRAMEWORK

7.4 RISK APPETITE METRICS

7.5 CREDIT RISK MANAGEMENT

7.6 ISSUES TO CONSIDER

FURTHER READING

8 Market Risk

8.1 INTRODUCTION

8.2 DEFINITION OF MARKET RISK

8.3 MARKET RISK FRAMEWORK

8.4 MARKET RISK ESTIMATION

8.5 MARKET RISK MANAGEMENT

8.6 ISSUES TO CONSIDER

FURTHER READING

9 Operational Risk

9.1 INTRODUCTION

9.2 DEFINITION OF OPERATIONAL RISK

9.3 OPERATIONAL RISK FRAMEWORK

9.4 OPERATIONAL RISK ESTIMATION

9.5 OPERATIONAL RISK MANAGEMENT

9.6 ISSUES TO CONSIDER

FURTHER READING

10 Liquidity Risk

10.1 INTRODUCTION

10.2 DEFINITION OF LIQUIDITY RISK

10.3 LIQUIDITY RISK FRAMEWORK

10.4 LIQUIDITY RISK MEASUREMENT

10.5 LIQUIDITY RISK MANAGEMENT

10.6 ISSUES TO CONSIDER

FURTHER READING

11 Other Risks

11.1 INTRODUCTION

11.2 REPUTATIONAL RISK

11.3 STRATEGIC RISK

11.4 BUSINESS RISK

11.5 OTHER MARKET RISKS

11.6 MODEL RISK

11.7 SUPPLIER RISK

11.8 RESOURCES

11.9 ISSUES TO CONSIDER

FURTHER READING

12 Risk Interactions

12.1 INTRODUCTION

12.2 RISKS AS FREQUENCY AND SEVERITY DRIVERS

12.3 RISK INTERACTIONS

12.4 IMPLICATIONS FOR RISK MANAGEMENT AND MEASUREMENT

12.5 ISSUES TO CONSIDER

FURTHER READING

Part III: Regulatory Environment

13 Regulatory Environment

13.1 INTRODUCTION

13.2 STRUCTURE OF PRUDENTIAL REGULATORY PROCESS

13.3 SCOPE OF PRUDENTIAL REGULATION

13.4 REGULATORY INFLUENCE

FURTHER READING

Disclaimer Regarding Excerpts from S&P Materials

Index

List of Tables

Table 2.1 Terminology for uncertainty

Table 3.1 Some biases that influence risk oversight (including Bazerman and Moore)

Table 5.1 Stakeholders and expectations

Table 6.1 Points on the risk compass

Table 6.2 Risk culture indicators

Table 6.3 Enterprise risk maturity evaluation

Table 7.1 Business line versus products/services intensity of credit risk

Table 7.2 Descriptive summary statistics on 1-year global default rates

Table 7.3 Global corporate average transition ratings (1981–2011) % (Standard deviation)

Table 8.1 Business line versus product/service sources of transaction market risk

Table 9.1 Business line versus product/service sources of operational risk

Table 9.2 Basic indicator and standardised approaches to operational risk estimation

Table 10.1 Business line versus product/service sources of funding liquidity risk

Table 10.2 Broad funding (liability) categories with interest costs

Table 10.3 Assets and liabilities with maturities more than 12 months

Table 12.1 Interaction frequency and severity drivers

List of Figures

Figure 1.1 Book overview

Figure 2.1 Risk and uncertainty

Figure 2.2 Risk types influencing the volatility of profit and loss

Figure 2.3 Sources of risk and uncertainty

Figure 2.4 Probability for normal and lognormal distributions

Figure 2.5 Downside range of outcomes

Figure 2.6 Cumulative probability for normal and lognormal distributions

Figure 3.1 Risk oversight perspectives

Figure 3.2 Aggregation of metrics showing reduction in volume

Figure 3.3 Risk perspectives, types of information

Figure 3.4 Reporting lines for the “three lines of defence”

Figure 3.5 Iterative relationship between risk appetite statements

Figure 4.1 Exposure, causes, controls and effects

Figure 4.2 Overview of the risk management cycle

Figure 4.3 Linkage of risk management cycles

Figure 5.1 Relationship between risk universe, capacity and appetite

Figure 5.2 Risk appetite when outcomes are skewed to the negative

Figure 5.3 Risk appetite perspectives

Figure 5.4 When outcomes are skewed to the negative

Figure 5.5 Users of risk reports

Figure 5.6 Spectrum of risk report content

Figure 6.1 Relationship between risk appetite and culture

Figure 6.2 Influences on risk culture of an individual

Figure 6.3 Risk compass

Figure 6.4 Attitude–behaviour–culture model

Figure 6.5 Attitude–behaviour–culture model for teams

Figure 6.6 Risk aspects of risk culture

Figure 7.1 Users of credit risk reports

Figure 7.2 AAA transition to other ratings over various periods

Figure 8.1 Possible returns with emphasis on the downside

Figure 8.2 Market risk oversight perspectives

Figure 8.3 Users of market risk reports

Figure 8.4 Reporting lines

Figure 8.5 Risk appetite as exposure and/or stop-loss limits

Figure 8.6 Risk appetite based on risk factors and stop-loss limits

Figure 8.7 Decomposition of risk factor into components

Figure 8.8 Risk appetite determined by portfolio simulation

Figure 8.9 Distribution of possible returns generated by portfolio simulation

Figure 8.10 Cumulative distribution of possible returns

Figure 9.1 Returns from operational risk

Figure 9.2 Operational risk heat map

Figure 9.3 Lines of defence and communication channels

Figure 9.4 Data and information flows up and down the organisation

Figure 9.5 Operational risk heat map with scale

Figure 9.6 Possible insurance buying strategies

Figure 10.1 Gross cash flows over a 30-day horizon

Figure 10.2 Net and cumulative cash flows over a 30-day horizon

Figure 11.1 Risk types encountered by financial firms

Figure 12.1 Interactions of frequency and severity drivers

Figure 13.1 Flow from Basel Committee and EBA to national requirements

Figure 13.2 Schematic of branches and subsidiaries

Figure 13.3 Prudential regulatory framework

Figure 13.4 Satisfying the capital ratio

Guide

Cover

Title Page

Table of Contents

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For other titles in the Wiley Finance series please see www.wiley.com/finance

Risk Management at the Top

A Guide to Risk and its Governance in Financial Institutions

Mark Laycock

This edition first published 2014 © 2014 by John Wiley & Sons, Ltd.

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Library of Congress Cataloging-in-Publication Data

Laycock, Mark Risk management at the top : a guide to risk and its governance in financial institutions / Mark Laycock. pages cm Includes index. ISBN 978-1-118-49742-5 (cloth)1. Financial institutions—Management. 2. Banks and banking—Risk management. 3. Corporate governance. 4. Risk management. I. Title. HG173.L376 2014 332.1068′1—dc232013039722

A catalogue record for this book is available from the British Library.

ISBN 978-1-118-49742-5 (hardback) ISBN 978-1-118-49743-2 (ebk)ISBN 978-1-118-49745-6 (ebk)

This book is dedicated to all those individuals who generously gave their time, knowledge, experience and guidance. In particular, I would like to thank my good friend Prof Dean Paxson, of Manchester Business School, who has encouraged my inquisitiveness over many years.

About the Author

Mark Laycock has experience across the risk disciplines that attract regulatory capital. He is highly regarded within the Operational Risk discipline. He began working on Operational Risk in 1998 whilst at Deutsche Bank, which he joined in 1996. Until this change he was assessing potential future exposures of customised Over-the-Counter derivatives for Deutsche Bank's Credit Risk management team.

In 1999 banking regulators wanted an explicit capital requirement for operational risk. As a result, he worked with several industry groups developing practices and liaising with the regulators. It was during this time that Mark helped to establish the Operational Risk Data eXchange (ORX) in 2002.

His involvement in Market Risk spans a decade from the mid-1980s. During this time he developed Market Risk reports (pre-VAR) for Fixed Income portfolios. He was also a trader of Fixed Income and Equity strategies, such as equity index arbitrage. Some of the products, involved in these strategies, were traded on exchange and others off-exchange. This early stage of Over-the-Counter Equity products raised Operational Risk issues, especially Legal Risk due to poor documentation prevailing at the time.

The later part of the Market Risk decade was spent at the Bank of England, Banking Supervision Division. The task was to support the implementation of the first Capital Adequacy Directive by the regulators and the industry.

Since 2008 Mark has worked for ORX on topics such as the scope of Operational Risk, Scenarios and Operational Risk Appetite. He also has a consulting company Alder Partners.

Mark has an MBA, from Manchester Business School, where his dissertation was on Maturity and Interest Rate Mis-Matching of Banks.

1Introduction

In the years since the 2007–2009 financial crisis, a number of expectations and requirements for financial institutions have changed and been published. Alongside technical issues, such as changes to capital requirements, stakeholders have outlined their expectations for revitalised oversight of risk issues by the Board.