RISK ANALYTICS IN CAPITAL MARKETS Risky business
Traditional risk management has been given a facelift, Hannah Prevett finds. Since the financial downturn and the bail-out of the banks, much time has been spent assessing the role risk analytics can play in a brave new world
IBS Journal September 2016
27
mitigating against disaster as it was assessing the best way for banks to use their capital, notes Marcus Cree, risk specialist in the Americas at Misys. “For a long time you’d work out how much a market risk was, work out how much you as an organisation might lose due to market conditions and you’d have to put an insurance amount aside, a capital level based on what you might lose just simply because you made the wrong bet.”
H
But that’s all changed since the banking crisis of 2008. “It used to be that you’d put enough capital aside and you’d be fine. But since the massive bail-outs that were required all the attention from the regulators have been to avoid another need for a bail-out because we just can’t afford it,” Cree explains. “It’s really quite a fundamental shift: you’ve gone from just reporting on the side to it really being at the central heart of every bank. You can’t just chase profit wherever it happens to be; you now have to look at what impact that has, what risks you’re taking and it’s all to protect the system because you can’t allow any of these big banks to go under any more.”
But the attitude towards risk has often varied from bank to bank, says Burcu Guner, Senior Director in the EMEA risk specialist team at Moody’s. Whereas in some financial services firms, risk may have been viewed as an inhibitor to getting deals done, others took advantage of risk processes and management to help drive efficiencies and profit. “Before regulation hit really hard, there were institutions really taking risk as a strategic advantage and that’s where the growth of
istorically, risk was as much about
credit portfolio management came along. But as the regulation intensified, people got derailed or distracted from the principles of portfolio management.”
However, the combination of increased regulator scrutiny and turbulence in the markets might mean the time is nigh for risk analytics to once again come to the fore. A robust strategy can lead to major financial gains for an institution, argues Michael Hopkins, President of the fixed income and operational risk business at Broadridge. “Analytics often provide the ability to act quickly and decisively because they furnish tangible, timely, actionable insight. Small changes in today’s volatile markets can result in large positive or negative changes based on exposures. So the demand for the right analytics is greater than ever to help mitigate risk or more rapidly take advantage of opportunities. Effectively targeted analytics are an important tool which often provides unique insight to manage and react to fast-moving volatility.”
Skills gap
So far, so good. However, to take advantage of the business benefits offered by risk analytics, banks need to be able to access the right mix of skills. “There is a bit of a skills gap,” admits Cree. “You need someone who really understands the business as well as being able to do the maths so they can become far more strategic within their organisation.”
Finding individuals who are skilled across a number of disciplines can certainly be a challenge, agrees
www.ibsintelligence.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
