When it comes to perspective numbers lie

When it comes to perspective, numbers do lie or to be concise viewpoints change even though the real value does not.

What I am talking about are reverse splits and in particular Citigroup's recent reverse split of its common stock.

The Operational Risk Framework Checklist Roadmap

Is your companies operational risk framework up to the mark? 

If you ask a risk analyst about their impression of their companies operational risk systems, which one has to admit is a relatively unframed question, but either way, if you did; the typical responses seem to range between: We're totally sorted or it's kind of there, perhaps we are not really sure.

Then of course how do we really know whether a company is good at managing operational risk or not. The final test of course comes when a business experiences a severe problem that puts its operations under threat and its controls to the test.

In this article we are going to review a check list for an operational risk framework that should be considered by risk management in all businesses. The aim here is to move towards best practice. 

 

Managing oil prices is all about preserving margins

In volatile commodity markets, a firm's ability to profit comes down to one thing: The capability a business has to control the transference of market volatility to margin volatility.

In this article we are going to look at how rising oil prices seem to impact commodity consumers in alternate ways and why investors often misunderstand the impact rising commodity prices have on their investments.

FSB - Progress on Strengthening Financial Stability

Progress on implementing the G20 Seoul resolve for strengthening global financial stability has recently been reported as being on track.

In this blog article we are going to look at what is being done by whom and when specific deliverables are due. This is a massive mandate for the FSB and simply due to the complexity or reach within the program alone, it chances on either being globally impacting or partly missing the mark. 

Nassim Taleb & Richard Herring - The Black Swan Debate

Black swans or to be precise, living with them is an interesting discussion that Nassim Taleb and Richard Herring have captured and published on the internet.

There are some valid and fascinating points from this chit-chat that I believe are worthy of embellishment and that is what I have taken to do here in this post.

Economist Intelligence Unit - Risk Radar 2011

The Economist Intelligence Unit has recently published a survey on risk management preparedness for global businesses which reports some interesting findings.

Continue reading to see summary

RMA Speech - How Basel III impacts Counterparty Risk

PRESENTATION [ Fast Download Here ]

An RMA Singapore Chapter speech on the impacts of Basel III for Counterparty Risk has been made available on the Causal Capital blog page here for download, see the link above. The presentation can also be received by contacting the Risk Management Association.

Causal Capital has delivered two counterparty risk speaking events in Singapore this week. This is the second presentation in the set and it builds on the first document that was designed to review the key components of a best practice counterparty risk system.

 
Continue reading to see the key points that are covered in this presentation.

A component view of Counterparty Risk

Credit and counterparty risk is the risk theme for Singapore this coming week, with two major events running in the city that cover this unique risk discipline in "technicality".

US regulators release new rules for Credit Risk Retention

New proposed rules for Asset Backed Securities have been released by the US regulatory agencies for comment. 

These rules are aimed at addressing the way in which banks securitize their loan portfolios and are a response to one of the main causes for the credit crisis in 2008.

What lies ahead for banks and investors?

ISO 10674 standard for credit rating agencies

International Organization for Standardization has recently published a new ISO standard that targets rating agencies directly. ISO announced this release on the 30th of March 2011 and is classifying the program as the Credit Rating Agency Standard; which will be a unique set of requirements to assist with improving the way credit rating agencies operate and report ratings.

In this article we are briefly going to look at labelled ISO 10674, what this standard aims to achieve, why it has come into existence and how it could be a game changer for the credit rating agencies.

Basel III - Cracks Appear Part 2

In part 1 of the "Basel III cracks are appearing" post which can be accessed by clicking here, we discussed the general misunderstanding on how capital works in Basel III. In this article we are going to look at some of the disparate issues around the new Liquidity Coverage Ratio.

LCR & NSFR

The Liquidity Coverage Ratio or LCR and the Net Stable Funding Ratio or NSFR, work hand-in-hand with capital as a three pronged mechanism and the entire system, can be viewed as an "all encompassing" solution designed to reduce liquidity funding feedback loops. All that aside, there are some broad concerns with the way in which specific elements are being interpreted by national regulators across the globe.

These new aspects of Basel III need careful tweaking to avoid unintended market consequences.

  

Basel III - Cracks Appear Part 1

A few months ago, when I first reviewed the Basel III guidelines, I was relatively positive about the proposal. Sure it is difficult to achieve in places but more or less on the mark. The credit crisis needed a global regulatory response and as heavy handed as it is, Basel III appears on the surface to address the causal factors for the collapse of the markets in 2008.

There are a lot of fears over Basel III which have been voiced by quite a few risk analysts across the planet. These concerns mostly revolve around the following argument that a strict rule is a linear or straight line concept that may not fix the banking system but may dampen economic growth. Yet, if the regulation is not strict enough, it won't be effective.

This interpretation of the ideal behind Basel III is incorrect in my opinion and is driving the banking community to act in a regulatory discordant manner.

In this article we are going to review a couple of concerning eventualities that seemed to have occurred as a response to Basel III. We will look at these concerns from the perspective of the banks and the regulators.

Cat Bonds and Catastrophe

In our first blog article on catastrophes and Extreme Value Theory which can be found by clicking here, we looked at methods for predicting outcomes from climatic events. We are going to follow up in this post with a review of structured products that can be used to provide financial cover for losses caused by weather and other environmental predicaments.

A year of catastrophes and Extreme Value Theory

This year has been particularly negative with respects to natural disasters and the associated impacts that obtrude the livelihoods of those communities affected. Considering we are only a couple of months into the year, the number of catastrophes that have struck various countries around the world is quite astonishing. 

To list a few disasters alone, we saw Queensland which is normally a drought suffering state of Australia inundated with so much rain that mass flash flooding ensued, Christchurch was flattened by an earthquake (warning these images are disturbing) on the 22nd of February and only two days ago Japan suffered the fifth largest earthquake since 1900, along with a devastating tsunami where the estimated damage and loss is currently unknown.

From a risk perspective of disaster management, this article investigates methods for predicting catastrophes and their potential loss. 

We have also followed up with a second article on how institutions can cover the fiscal loss from these environmental disasters by using financially structured products. This posting can be found by clicking here.

Best Practice RCSA Framework

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For a long time, the activity of Control Self-Assessment has been a recognized industry wide approach that is used by both operational risk and audit departments to assess whether a specific business function is operating its controls effectively. The program is supposed to identify whether any control breaches have occurred during a reporting period and how congruent each control is within the network of controls.

In this blog we are going to highlight the key points for making a Risk Control Self-Assessment program a success and a presentation has been included here which outlines a best practice Risk Control Self-Assessment (RCSA) method.

Basel III might be the sun behind the dark clouds for rating agencies

Dark clouds are on the horizon for rating agencies and while many banks have become public enemy number one, the rating agencies aren't off the hook from their hand in the Credit Crisis either.  I am not saying it is curtains for the rating agencies but the world is certainly going to change for them.

The affront on rating agencies

In 2006, the Securities and Exchange Commission passed a Credit Rating Agency reform act which was to stipulate a set of guidelines to determine which rating agencies can be classified as Recognized Statistical Rating Organisations and to guard against conflicts of interest, the act can be found by following this link.  Given the outcome of the Credit Crisis in the backdrop of this act and the role the rating agencies played in masking risk across a whole range of assets, not to mention the credibility of the credit assessment process itself, the act might be deemed as being ineffective. I fair the issue was more likely that the SEC ruling was simply passed into law too late in the day and the Credit Crisis was already underway.

None the less, the US regulators aren't letting go of this.

  

Basel III - Thinking About Liquidity Risk Differently part 1

Market Liquidity and Funding Liquidity are symmetrical aligned intertwined risks which feature heavily in the Basel III accord. However, Liquidity Risk isn't actually new to the accord at all but it is definitely structured in a new way with Basel this time round.

In this blog we are going to look at how Liquidity Risk worked for Basel II and the liquidity issues during the Credit Crisis. We will then follow up with an article on how Basel III approaches Liquidity Risk.

Basel III - Part 2 - What's on the menu

With each financial crisis there will inevitably be a response from the Bank for International Settlements (BIS) but then that is their main charter of work.   In our first article on Basel III, which can be found by clicking here, we discussed what brought us to this place.  I suppose that leads us unerringly to the riposte which is the purpose of this article; where to from here.
 
Continue on reading to see what's on the menu for Basel III.

Basel III - New Insight for an old resolve part 1

To understand why Basel III has been restructured in a new way, we need to take a look at what brought us to this place.

Optimizing ERM

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During a recent discussion in a risk forum, it was posed that many companies simply engage in risk management exercises to meet a regulated standard. Outside that achievement, the business value of these risk and audit practices is limited.