Index. Managing Risks in Commercial and Retail Banking By Amalendu Ghosh Copyright 2012 John Wiley & Sons Singapore Pte. Ltd.

Transcription

1 Index A absence of control criteria, as cause of operational risk, 395 accountability, additional exposure, incremental loss from, 115 advances and loans, ratio of core deposits to, advances, credit risk reform, ALCO. See Asset Liability Management Committee ALM. See asset liability management analysis duration gap, maturity gap, simulation, appetite credit risk, 234 risk, approaches, liquidity management, approval process, rating, 145 architecture, risk management, Asian financial crisis causes and impact, lessons from, 518 risk proliferation sequence, 516 risks emerging from, assessment, capital adequacy, asset categorization, 159 asset liability management (ALM), Asset Liability Management Committee (ALCO), 321, 379 asset liability review, asset values finding volatility of, 344 loss in, assets, classification of, assumptions, validity of, audit system, independence of, autonomy, preventing misuse of, B back-testing, credit risk models, bank supervisor, role of, 232 banking book, , banks board of directors, corporate governance in, internal rating systems, rating practices in, 129 senior management, Basel Committee on Banking Supervision, basis risk, 330 Basel III. See Basel Committee on Banking Supervision BCBS. See Basel Committee on Banking Supervision bias risk, 330 board of directors, selecting, 506 borrower characteristics in credit risk rating, Managing Risks in Commercial and Retail Banking By Amalendu Ghosh Copyright 2012 John Wiley & Sons Singapore Pte. Ltd. 541

2 542 INDEX borrower rating, interpretation of, branch office assessment of function, 475 compliance by, 482 credit management by, internal control application, liquidity management, operational risk management, rating, revenue management, risk profiles of, systems improvement, 483 business continuity planning, methodology, support requirements, business environment, appropriate, business line identification, operational risk and, business performance, measuring, business risk, 3 4 relationship, C capital accord options, capital adequacy assessment, cash flow approach, 307 collateral management practices, enhancing, collateral, too much confidence in lending against, 84 commodity price risk, communication efficiency, increasing, 33 compliance, branch office, 482 component rating, derivation of, component risk, assessment of, computation, loan pricing, confidence levels, choosing, 344 conflicts of interest, rating, contagion risk, contingency planning, liquidity, control, 66 detective and corrective, 26, 29 identifying elements of, operational risk, posttransaction, pretransaction, 24 preventive, types of, 23 control application field, determining, control culture, enhancing, control culture, absence of, 395 control foundation, strengthening, control framework customization, establishing, control risk, 3 4, 19 20, 361 how it occurs, 19 control risk relationship, control system failure, as cause of operational risk, core deposits, ratio of loans and advances to, corporate governance, banks, elements, foundation, in banks, objectives, risk, values, 494 corporate vision, risk management policy and, corrective controls, 26, 29 correlation effect, evaluating, counterparty rating derivation of, interpretation of, country risk, defined, 7 credit, selecting, 113

3 Index 543 credit administration process, maintaining, 231 credit audit mechanism, absence of, credit boom, credit concentration assessing, prevalence of, risk, 517, credit deployment, credit derivatives method, credit risk mitigation, credit enhancement method, credit risk mitigation, credit granting process, sound, credit loss estimation, credit management branch office, credit risk management and, credit monitoring, laxity in, 88 credit portfolios, stress testing of, credit problems, beginning of, credit risk, 5 7 appetite, 234 assessment, causes of, control, setting up, environment, establishing, from lax lending standards, hidden, identification process, indicates, 6 intermediate, 6 7 limits, market risk and, policy, problem loans and, credit supervision, laxity in, 88 credit risk identification complications in, credit management and, organizational structure for, principles, credit risk measurement models, credit risk mitigation, techniques, credit risk models, back-testing of, credit risk policies and strategies, credit risk policy, credit risk rating (CRR), borrower characteristics in, criteria, development of methodology, new borrower model, 194 old borrower model, principles, risk measurement models and, transaction characteristics in, uses of, credit risk vision, CRR. See credit risk rating D data, storage and retrieval, deal size limit, 368 default definition of, probability of, default frequency, mapping, default mode (DM), mark-to-market and, 202, 203 default probability, risk rating and, 112 default risk, 360 from unfair lending practices, derivative characteristics, derivatives credit risk from, risks, 106 underestimation of risks, detective controls, 26, 29 direction of credit deployment,

4 544 INDEX disclosure requirement, disclosure standard, DM. See default mode due diligence, duration gap analysis, duration gap implication of, management of, dynamic liquidity, E EAD. See exposure at default early warning signals, earnings at risk, computation of, 350 estimation of, earnings, loss in, EL. See estimation of expected loss electronic banking, risk in, embedded option risk, 331, 352 entry point ratings, inaccuracy in, equity exposure management, framework of, equity exposure identification, risk measurement, equity price risk, review, 385 equity value, change in, estimation of expected loss (EL), estimation of unexpected loss (UL), events, significant, exchange risk impact, estimating, 265 exit point, selecting, 119 expected loss, estimation of, exposure at default (EAD), estimation of, exposure limit fixing, large, external control risks, external events, as source of operational risk, external loss data measurement, 423 F facility structure risk, financial risk, 4 impact of, 16 financial viability risk, assessment of, 179 foreign currency exposure measurement, liquidity, 325 liquidity risk and, foreign exchange risk, hedging, implication, management, quantification, review, types, funding risk, 352 G gap limit, gap risk, 359 grievance redress, existence of, 507 H hardware systems location, technology risk and, 39 hedging, foreign exchange risk, hidden credit risk, human resource development, risk management and, I identification process, credit risk, identification equity exposure, liquidity risk, risk factors and elements,

5 Index 545 inadequate communication, as cause of operational risk, 395 incremental loss from additional exposure, 115 incremental risk, measuring, independent verification of ratings, 146 ineffective auditing, as cause of operational risk, 397 information technology risk, 42 interbank exposure, credit risk from, intercountry exposure, credit risk from, interest income stress testing, interest rate risk, , , causes, control, 354 management, measurement, measurement perspective, review, intermediate credit risk, 6 7 internal audit department, structure, internal audit function, review of, 483 internal audit, changing role, internal audit, relationship with internal control, 444 internal audit, scope and rationale, internal control application, branch office, efficacy, 496 framework, objectives, 21 relationship with internal audit, 444 internal control, risks, internal loss data measurement, internal rating based approach, 158, 159 international financial system, 15 investment opportunities, 14 investments credit risk from, ratio of purchased funds to, 309 J judicial process, improving, K key risk indicator, L large exposure, legal risk, 12, 361 lending against collateral, too much confidence in, 84 lending practices, unfair, lending standards, lax, leverage, preferred borrowers too high, 91 LGD. See loss rate given default liabilities, classification of, limits credit risk, large exposure, risk, liquid assets, ratio of short-term liabilities to, 308 liquidity contingency planning, liquidity crisis, 312 liquidity funding risk, stress testing of, liquidity gap analysis, 301 liquidity management alternate scenarios and, approaches, branch office, structure, 306 liquidity risk, causes, foreign currency and, identification, measurement, review, liquidity risk indicators, emergence of, 322

6 546 INDEX liquidity risk management, policies and strategies, liquidity risk monitoring and control, loan exit point, selecting, 119 loan loss reserves, validating, loan prices, fixing, loan pricing, 271 computation, issues, principles, loan processing, lack of due diligence in, loans and advances, ratio of core deposits to, loans credit risk from, ratio of total assets to, 307 long-term corporate goals, formulation of, loss rate given default (LGD), estimation of, loss reserves, validating, loss severity, mapping, 264 loss asset value and earnings, estimation of, M Macaulay s duration, macroeconomic risk, management commitment, risk management and, management information system (MIS), strengthening, 34, 266 managerial risk, assessment of, 180 mapping default frequency, loss severity, 264 rating migration, mark-to-market (MTM), default mode and, market risk, 7 8, 283 credit risk and, 95 96, defined, 7 8 management framework, policy, 288 types, vision, market risk management, organizational setup, maturity gap analysis, limitations of, maturity mismatch risk, 352, 518 measurement, liquidity risk, microeconomic risk, MIS. See management information system mismatch risk, misuse of autonomy, preventing, mitigation, operational risk, model inputs, identification of, models, credit risk measurement, modified duration, 338 money launderers, 13, 15 money laundering estimates of, 13 laws, risk, stance, 508 monitoring, 66 MTM. See mark-to-market N net interest position risk, new activities, as cause of operational risk, new borrower rating models, need for, new products as cause of operational risk, introduction of without preparation, nonfinancial risk, 4 5 impact of, 17

7 Index 547 O off-balance sheet exposure, credit risk from, offshore banking risk, old borrower rating models, need for, operating environment risk, operational risk, 8 10, awareness of, 9 10 causes, 8 9, control and mitigation, defined, 8 monitoring, sources, operational risk assessment methods, operational risk events, high-intensity, operational risk identification, operational risk management branch office, framework, operational structure, operational risk measurement methodology, process, operational risk policy contents, objectives, organizational structure for credit risk management, market risk management, risk management, output consistency, rating, 145 over-the-counter derivatives, underestimation of risk, overseas banking risk, P past dealings risk, PD. See probability of default people, as source of operational risk, 391 planning horizon, choosing, policies credit risk, liquidity risk management, policy risk management, risk-based internal audit, portfolio analysis, technique, portfolio classification, portfolio evaluation system, absence of, portfolio management issues, objectives, 256 portfolio review analysis, portfolio risk mitigation techniques, position limits, position risk, posttransaction controls, preferred borrowers, high leverage to, 91 preparation, introduction of new products without, pretransaction controls, 24 preventive controls, preventive vigilance, prime assets, ratio of total assets to, 308 probability of default (PD), estimation of, problem loans, credit risk in, processes, as source of operational risk, project implementation risk, prospect risk, purchased funds, ratio of investments to, 309 Q qualitative assessment, scoring norms for, , 189 quantitative assessment, scoring norms for, R rating approval process, rating coverage,

8 548 INDEX rating criteria, transparency in, rating framework design of, overview, rating granularity, 137 rating migration, mapping, rating models need for different, types of, rating practices in banks, 129 rating process, integrity of, rating principles, 122 rating review, 145 rating scale, rating system dimension, rating, independent verification of, 146 interpretation of, rationale, internal audit, regulatory risk, reinvestment risk, 331 related party lending, lack of transparency in, repricing risk, 352 reputation risk, responses, to U.S. financial crisis, 533 retrieval of data, revenue management, branch office, risk categories of, 3 4 concept of, 3 facility structure, financial viability, impact of, increased volume of credit, managerial, managing, overseas banking, past dealings, project implementation, prospect, quantitative estimation of, sources, 5 stability, technology, risk appetite, risk-based audit differences from transaction-based audit, functions, planning, reporting, risk assessment, score assessment and, tools and techniques, verification of, 72 risk components identification of, 160 quantification of, risk control, 66 risk elements assignment of weights to, development of scoring norms, identification of, risk events, identification of, risk factor rating, adoption of scale for, 462 risk factors assignment of weights to, identification of, selection of, , risk grades, risk hedging, risk identification, 47 process, risk limits, risk management (RM), 45, 76 approach, architecture, human resource development, management commitment and, organizational structure, role of senior management and board in, risk management policy, corporate vision and goals, risk management systems, 59 66

9 Index 549 risk mapping, 419, 421 risk measurement models, credit risk rating and, risk measurement, tools, risk migration, tracking, risk mitigation options, selecting, risk mitigation techniques, portfolio, risk monitoring, 66 risk perception, differentiation in, 123 risk prioritization, risk profiling inputs, risk rating scale, determining, risk rating system dimension, risk rating default probability and, 112 developmental issues, granularity in, 137 risk-based audit differences with transaction-based audit, , 447 planning, process, reporting, scope, risk-based internal audit functions, methodology, policy, transition to, , 484 risk-based loan pricing, 276 RM. See risk management S scenario-based measurement, scenario test, 221 scope, internal audit, score assessment risk assessment and, norms for, scale for, scoring norms qualitative assessment, risk elements, small exposures, 189 scrutiny, methods and focus, self-assessment, of control and risk, sensitivity test, 221 shareholder responsibility, short-term liabilities ratio of liquid assets to, 308 ratio of total assets to, 308 significant events, simulation analysis, software programming, technology risk and, stability risk, stock approach stop-loss limit, storage of data, strategies credit risk, liquidity risk management, stress testing of credit portfolios, interest rate income, of liquidity funding risk, procedures, 316, undertaking, structural liquidity normal scenario, statement of, structure internal audit department, liquidity management, 306 operational risk management, subprime lending, systems compatibility, technology risk and, 40 systems handling, technology risk and, systems improvement, branch office, 483 systems planning and design, technology risk and, 40 41

10 550 systems as source of operational risk, 392 risk management, T taxation, 14 technology risk defined, 37 management of, sources of, term structure risk, 352 time horizon, selecting, tolerance limit, 370 appropriateness of, total assets ratio of loans to, 307 ratio of prime assets to, 308 ratio of short-term liabilities to, 308 ratio of volatile liabilities to trading book, traditional method, credit risk mitigation, 249 transaction characteristics in credit risk rating, transaction settlement, credit risk from, 109 transaction-based audit, differences with risk-based audit, , 447 transparency, transparency in related party lending, lack of, U U.S. financial crisis causes and associated risks, impact of, 519 lessons from, responses to, 533 UL. See estimation of unexpected loss uncertainty, 3 unexpected loss, estimation of, unfair lending practices, unrevised profile, as cause of operational risk, 397 V validation, validity of assumptions, value-at-risk, limit, 370 review, vendor choice, technology risk and, 39 verification, of ratings, 146 verification, risk assessment, 72 vigilance system, establishment of, volatile liabilities, ratio of total assets to, 309 volatility, asset values, 344 volume of credit risk, W warning symbol indicators, weight assignment, risk components, risk elements, 178, risk factors, , Y yield curve risk, 330