09-05-2013, 12:59 PM
Use of Information System in Risk Management in Banking Industry
Use of Information.pptx (Size: 1.48 MB / Downloads: 23)
Liquidity Risk
Liquidity is the ability to pay, whether it is to pay a bill, to give a depositor their money, or to lend money as part of a credit line
Customer demands for funds are highly unpredictable, especially demand deposits
Off-balance sheet risks, such as loan commitments, letters of credit
Credit Risk
Traditional banking products
Loans
Commitments to lend
Letters of credit
Traded products
OTC derivatives
Repos (and reverse repos)
Securities borrowing and lending
Plus settlement risk
Foreign exchange
MARKET Risk
Greater profits can be made by taking greater risks
Bank's leverage ratio is limited by law, but it can try to earn greater profits by trading securities
Rogue traders can cause stupendous losses for banks, even causing their bankruptcy
Operational Risk
Arises from faulty business practices, when property required to run the business are damaged
Also arises because of unforeseen calamities Eg.Banks in the vicinity of the World Trade Center suffered considerable losses as a result of the terrorist attacks on September, 11, 2001
Basel Norms and RBI guidelines
Basel II makes it mandatory to make system and processes compliant with standards.
RBI guidelines to the banks for implementation.
Pillar 1:
Calculation of capital ratio.
Permits the bank to choose between two methods SA (Standardized approach)and IRB (Internal risk based).
The Road Ahead
As and when the local jurisdiction decide and publish the applicable rules, Reveleus will provide to these standardized rules to Citigroup ‘out of the box’
Concurrent Computation of Capital using multiple approaches of Risk Management can be easily done and compared on periodic basis.