Financial Risk Management - Methods, Tools, Principles and Regulation
Location: Prague, NH Hotel Prague
Lecturer: Jean-Bernard Caen
Key points / questions answered:
What are the objectives of risk management in banks?
How to identify and classify risks?
What can we learn from passed crises and defaults?
Can all risks be measured? What if they can't?
What is expected from the risk managers?
How to measure and aggregate risks?
Will the regulatory and the economic approaches converge?
When is risk-taking profitable?
What are the current issues in risk management?
Everything you need to know about Risk Management in Banks
The purpose of this seminar is to introduce the principles and mechanisms of risk management in banks. During these three days, we address all the main issues relevant to this matter. These are illustrated by a number of business cases and exercises that facilitate the assimilation of the concepts and techniques presented.
During the first day, we identify and uncover the nature of the risks banks are facing. We start by digging out the roots of risk management. From the Chevalier de Mere and his taste for games to the build-up of modern risk frameworks and quantitative measurement techniques. This path is littered with trial and errors that have led to crises and catastrophes, some of which are reviewed and analyzed.
We then classify the risks and discover how to hunt for new, emerging ones. From there, we review the theoretical foundations of risk measurement and how they are translated into the regulatory and the economic frameworks. As both frameworks coexist in banks, we spend some times understanding their differences and how they articulate.
During the second day of the seminar, you will learn the techniques used for measuring risks. They rest on a limited number of simple and powerful principles. These principles are then translated into techniques adapted to each risk type: credit, market and balance sheet risks. Diverse techniques are used to assess multiple risk measures that are complementary and need to be articulated. The issue of how to aggregate risks is addressed at this point. A number of exercises and games will facilitate assimilating these principles and techniques.
When we reach the third day, you know how to measure and aggregate risks. Then comes the question of their management; in other words, you learn how their evolutions can be controlled and how risks can be mitigated. A number of key issues of risk management in banks are addressed: Which risks are profitable and should then be taken, which are not? What are risk budgeting and risk appetite? How to relate risk measurement with the pricing of financial transactions? What is expected from Risk Management professionals in banks and how do they relate to other functions in the institution?
During the afternoon, we give some perspective to what we have learned so far by reviewing the most pressing issues banks are currently facing in terms of risk management: How do banks deal with the increasing regulatory pressure? How do they plan to fulfill the new resolution constraints? What impact will IFRS 9 have on credit risk assessment? Will Fintech transform the way banks handle their risks?
We finish the seminar with a series of exercises/games aimed at rehearsing all the major elements learned during these three days: Risk identification, measurement and aggregation; risk control, mitigation and management; and finally risk-return issues and current concerns.
09.00 - 09.15 Welcome and Introduction
09.15 - 12.15 Introduction to Financial Risk Management
A brief history of Risk Management
The Birth Of Mathematical Tools
Probabilities, Gaussian and non-Gaussian statistics
Always Larger Markets
Bartering, town markets, stock markets, financial markets
Finance and Regulation, The Mouse and The Cat
Quants, bubbles and systemic risks
Crisis and catastrophes
Risk Identification and Classification
Applying The Risk Framework Of Nuclear Events To Financial Risks
Risks that can be identified and risks that cannot
Risks that can be quantified and risks that cannot
Is the credit, market, operational risk segmentation good enough?
What business models generate what risks?
Adapting the classification of risks to the activities of the bank
12.15 - 13.15 Lunch
13.15 - 16.30 Quantitative Techniques For Risk Measurement
Theoretical Basis Of Risk Assessment
What-if and scenario analysis
VaR, CVar, Expected Shortfall
Handling correlations, GARCH, OUCH, copulas
The limits of the statistical approaches
Regulatory Vs. Economic Approaches
The Regulatory Approach
Basel 1, 2 and 3
The standardized, foundation and advanced approaches
The Economic Approach
Economic capital concepts and guidelines
Articulating The Two Approaches
Case Study: Dexia
09.00 - 09.15 Recap
09.15 - 12.00 Risk Measurement
Credit Risk Parameters
EAD, PD, LGD
Concentration, diversification and correlations
Credit Risk Models
Models for Corporate activities: Empirical and structural types
Models for Retail: From scorecards to Markov chains
Models for Sovereigns
Case Study: The Sovereign Debt Crisis
Market Factors And Their Impacts On The Value Of Assets
The greeks: Alpha, beta, gamma
Market Risks Models
VaR models and their limitations
Assessing tail risks
Risk dynamics and portfolio management
Case Study: Lehman Brothers
12.15 - 13.15 Lunch
13.15 - 16.30 Risk Measurement (cont.)
Balance Sheet Risks
Measuring The Interest Rate Risk Of The Banking Book
Building up the interest rate gaps
Behavior models for non-maturing assets and liabilities
Sensitivity and duration
Embedded options, prepayments
Measuring Liquidity And Funding Risks
Liquidity ratios, LCR and NSFR
Measuring Spread And Funding Risks
The articulation between liquidity, spread and funding risks
Funding risk, a special risk
Case study: Credit National
Other Risks And How To Aggregate All Risks
Assessing Operating Risks
Business risk, residual risk
Risks do not add up
Consolidating risk measures
09.00 - 09.15 Recap
09.15 - 12.00 Managing the risks of the bank
Risk Management in Banks
Organization Of The Risk Management Function
Expected Internal And External Disclosures
Internal management reporting
Funds Transfer Pricing
Locating risk management in the right expertise center