Risk Management in Banks and the Capital Implications
The goal of this two-day workshop is to understand how risks are categorised, quantified, monitored and managed within banks. Specifically, participants will be equipped to:
- Identify, categorise and quantify credit, market, liquidity, operational, legal, regulatory and reputation risks
- Understand the systems and procedures needed to track, monitor and manage these risks
- Have an understanding of how the bank’s capital is allocated to each of these risks from both a regulatory and management perspective.
The aim of this section is to introduce the inherent risks of a bank's balance sheet and the need for capital to cover these risks.
- Why risk is inherent to a bank’s business model and therefore why effective risk management is critical
- An overview of lessons learned from risk management failures and best practice in the identification, monitoring and management of the different risks faced by a bank
- Value drivers and the business model of a bank
- Differing perspectives: shareholders, regulators, debt providers.
- Identifying and defining major risk groups: credit, market, liquidity, operational, legal, regulatory, and reputation
- Significance of risk groups for different banking businesses
- Inter-relationship between key risk groups
- Management objectives – risk vs. return
- Lessons learned from recent risk management failures
- Exercise: risk identification at a large bank.
- Definition of capital: expected and unexpected losses
- Types of capital: shareholder, regulatory and economic capital
- Regulatory capital
- Definitions of Regulatory Capital; Core Capital, Tier 1/2
- Structure of the Basel capital adequacy model
- Basel II Structure: Pillars I, II and III
- Economic capital and Economic Value Added (EVA)
- Key assumptions, benefits and shortcomings
- How management can use economic capital in the business
- Managing capital structures: comparisons between banks
- Case study: contrasting definitions of capital for a large international bank.