Supervision

An overview of EU Financial Regulation initiatives

An overview of EU Financial Regulation initiatives

Reading Time: 1 min.

An overview of EU Financial Regulation initiatives

EU Regulations

In the European Union there are several ongoing large scale legislative and regulatory projects that transform the context within which individual, firms and the public sector interact economically. While financial and regulatory reform is an ongoing process in all jurisdictions globally, the size and supra-national nature of the European Union makes those projects particularly interesting.

A new entry at the Open Risk Manual aims to provide a brief overview of ongoing projects / initiatives. More in-depth coverage when those projects have implications for Risk Management are provided in separate entries.

If banks were airlines

If banks were airlines

Reading Time: 3 min.

If banks were airlines

Airbus

Ever since the scary turbulence of the Great Financial Crisis it has been instructive and illuminating to compare the travails of the financial industry with the state of other industries, especially those more down to earth, also known as real world industries.

The automotive industry was particularly handy for good analogies: Almost all of us have first-hand experience with the successes and failures of risk management when it concerns cars and driving. We are active risk managers when we drive ourselves. We sit on the receiving end when driven around by somebody else. While we drive, we experience, interact and our lives depend on a highly complex piece of engineering - the automobile. Yet cars are designed, constructed and sold for profit by fallible humans, with all the usual conflicts of interest and associated caveats. Hence a comparison of bank risk management with the risk management of the automotive industry would be quite informative.

Reducing variation in credit risk-weighted assets

Reducing variation in credit risk-weighted assets

Reading Time: 4 min.

Reducing variation in credit risk-weighted assets - The benign and vicious cycles of internal risk models

Risk Models

March 2016 wasn’t a good month for so-called internal risk models, the quantitative tools constructed by banks for determining such vital numbers as how much buffer capital is needed to protect the savings of their clients.

First came the Basel Committee’s proposed revision to the operational risk capital framework applicable to banks, next came a similarly fundamental overhaul of what form of risk quantification will be acceptable for calculating credit risk capital requirements.

AMA Risk Model

AMA Risk Model

Reading Time: 6 min.

Save the AMA whale

Save the AMA whale

ΝΒ: This is not a post about real whales and the ongoing struggle to keep these magnificent mammals alive for future generations to marvel at. Hopefully the individuals who have risked their lives to bring the near extinction of many whale species to worldwide attention will not take offense with us usurping imagery linked to this valiant campaign. We simply want to draw attention to another, rather more armchair type of campaign, namely: saving the_AMA risk model. A bit more esoteric as a cause, but ultimately a good cause nevertheless_

Concentrating on Concentration Risk

Concentrating on Concentration Risk

Reading Time: 4 min.

Concentrating on Concentration Risk

Senior economists such as Ben Bernanke were still studying the Great 30s Depression when the financial crisis struck in full force circa 2007. Given the complexity of the modern economic and financial landscape compared to the blessed good old days - we have no reports of FWMD (financial weapons of mass destruction) from back then - we can reasonably project that economists will be studying and pontificating on causes and remedies for the current crisis for the next 100 years or so.

Its all about balance these days!

Its all about balance these days!

Reading Time: 1 min.

In our personal lives, it is the balance between work and life, or the dreadful weight balance. In the professional sphere it might be the balance between debt and equity in the financial industry, or the balance between convenience and citizen privacy in the new tech industry, or the welfare of the many balanced against the property of the few, or finally the geopolitical balance of power of different peoples Balance ensures sustainability as it helps steer away from the risks that lurk at the extremes. It is actually hard to find scenarios in which a balanced approach would not be the optimal way to complete any meaningful journey. Maybe in a world with full visibility and zero risk.

ECB AQR Programme Documentation

ECB AQR Programme Documentation

Reading Time: 0 min.

Open Risk developed an online accessible version of the AQR manual that offers additional means to access and browse the Phase 2 ECB AQR Manual. The asset quality review (AQR) was one of the components of the comprehensive assessment performed by the ECB prior to assuming full responsibility for supervision under the single supervisory mechanism in November 2014

NB: The AQR manual is now being integrated into the Open Risk Manual.