Risk Management in Banks Course

Accounting, Finance and Budgeting Training

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Risk Management in Banks Course

Course Overview:

Risk Management in Banks training is designed to give participants in-depth knowledge of different categories of risks endured by banks such as credit, market, liquidity, operational, and reputational risks. Participants focus on how to perform a functional analysis of a bank's balance sheet, discern balance sheet’s inherent risks, and employ both qualitative and quantitative means of controlling those risks.

Topics such as the Basel III directive, the approaches for the determination of regulatory capital, and liquidity risk of banks and the banking system are also covered. Several of the interviews with CEO's concerning risk management failures and changes in regulation after the financial crisis are analyzed through the examples of specific case studies. In addition, participants will work with such aspects of capital regulation as risk measurement and regulatory capital attribution.

Course Objectives:

By the end of the Risk Management in Banks training Course, participants will be able to:

Understand the business model of banks in relation to the risks they take
Identify the key banking risks groups and their relative importance.
Learn about the qualitative and quantitative tools for measuring and managing financial risk in banks
Understand the regulation aimed at controlling risk in banks and how it has evolved
Understand the different methodologies used for regulatory capital and liquidity requirements in banks

Who Should Attend?

The Risk Management in Banks Course is suitable for:

Risk managers, regulators, internal auditors, bankers and analysts,
Also appropriate for a broader audience who wish to gain a better understanding of risk management processes within a bank and how they are regulated.
It is targeted at an intermediate level and assumes a basic understanding of accounting, financial products and banking functions.

Course Outlines:

Risk Management

Identifying and defining major risk groups and how they arise in the derivatives business: market, credit, liquidity, operational and reputation
Lessons learned from risk management failures in derivatives
Exercise: Company failures caused by derivatives

Analytic Overview

The aim of this section is to introduce the inherent risks of a bank’s balance sheet and the need for capital to cover these risks.

Analyzing Banks

Why risk is inherent to a bank’s business model and therefore why effective risk management is critical
The balance sheet of a typical bank
The importance of capital

Key Risk Areas

Identifying and defining major risk groups: credit, market, liquidity, operational, legal, regulatory, counterparty and reputation
Overview of how much risk banks take in each group and the complexity of the risk

Risk Management Failures

Historical failures in financial institutions
Lessons from the global financial crisis (GFC)
Regulatory changes since the GFC

Regulatory Capital in Banks

Regulatory capital
Basel and the three pillars
Overview of minimum capital ratios
Exercise: Analyzing the Pillar 3 report of a large bank

Market Risk

This section introduces sources of market risk in the balance sheet and how this risk can be quantified and managed. Finally, the section covers the principles of regulatory capital allocation for market risk.

Definitions and Sources of Market Risk

Defining market risk
Exercise: Defining the magnitude of various market risks

Value-at-Risk (VaR)

Purpose of VaR
Methodologies for calculating VaR

Regulatory Capital for Market Risk

Trading book and banking book
Standardized approach
Internal models – the use of VaR to define regulatory capital
Back testing
Exercise: Market risk disclosures at a global bank

Credit Risk

Credit risk is possibly the most important risk faced by most commercial banks. This section explains the nature of credit risk, including the relevant products, types of credit risk, quantification and regulatory capital methodologies.

Identifying Credit Risk

Credit products
Types of credit risk

Credit Risk Indicators

Credit ratings
Credit spreads

Mitigating Credit Risk

Contractual mitigates
Securitization and credit derivatives
Exercise: Credit portfolio management in a global bank

Quantifying Credit Risk

Default probability
Loss given default (LGD) and recovery
Default correlation

Regulatory Capital for Credit Risk

Standardized risk weights
Exposure at default methodologies
Internal rating based (IRB) approach
Exercise: Cost of credit

Counterparty Risk

Counterparty risk has grown in significance in recent years. It represents a combination of market and credit risk and is related mainly to OTC derivatives transactions. This section explains the nature of counterparty risk, risk mitigation and how regulatory capital methodologies for credit risk incorporate counterparty risk.

Defining Counterparty Risk

Settlement and pre-settlement (counterparty) risk
The derivatives market
Risk mitigates for counterparty risk

Quantifying Counterparty Credit Exposure

Potential future exposure
Monte Carlo simulation and add-on approaches
Wrong-way risk

Regulatory Capital for Counterparty Risk

Default risk and CVA capital charges
Current exposures and internal model methods
Changes in methodologies and impact of central clearing

Operational Risk

Operational risk was a new risk to be quantified under Basel II, and occurs throughout a bank’s business model. This section aims to explore some of the challenges that face banks in controlling, quantifying and allocating regulatory capital to operational risk.

Defining Operational Risk

Sources, categorization and drivers of operational risk
Exercise: Operational risk examples
Causes of operational risk in a bank

Legal and Reputational Risks

Examples of reputational problems
Suitability issues and derivatives
Exercise: Matching risk to description

Regulatory Capital for Operational Risk

Basic indicator approach
Standardized approach
Advanced measurement approach (AMA)
Basel III new Operational Risk Standardized Approach

Liquidity Risk

Liquidity risk can be the most acute form of risk facing a financial institution at times of crisis as this is often the means by which providers of bank funding express dissatisfaction with management of other risks (e.g. credit risk). The aim of this section is to explore types of liquidity risk, how these risks are managed and the regulatory requirements faced by banks.

Nature of liquidity risk