The Handbook of Risk Management Implementing a Post-Crisis Corporate Culture

by Carrel, Philippe

• ISBN13: 9780470681756
• ISBN10: 0470681756
• Format: Hardcover
• Copyright: 2010-04-26
• Publisher: Wiley
• More Book Details
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Summary

This handbook shows a firm how to repurpose its risk management in order to design and implement a corporate culture which involves all business units and individuals at each level of the hierarchy, how to analyse its risk appetite, translate it into risk policies and risk targets and distribute responsibilities and capabilities accordingly. The book explains how to identify risk exposure across the enterprise; how to empower each business unit with risk management capabilities; how to create an information workflow for preventative decision making; how to align funding strategies and liquidity management tactics with corporate risk policies and finally, how to deal with risk management in external communications.Philippe Carrel (Geneva, Switzerland) is Executive Vice President, Global Head of Business Development in Risk Management, at Thomson Reuters. Specialist of derivatives valuations and regulatory compliance, he was previously Head of Alternative Investments Strategies at Reuters in New York and Director of Risk and Trade Management at Reuters head office in London.

Author Biography

PHILIPPE CARREL, is Executive Vice President, Risk Management, at Thomson Reuters, based in Geneva, Switzerland. He is currently specializing in aspects of 'Implementing Risk Management as a Corporate Culture' at banks and asset management companies globally. In his special assignment to define 'Post-Crisis Risk Management' with key financial institutions and regulators, he helps risk executives and senior managers dealing with the constraints and uncertainties of the financial markets through a new concept he identifies as 'Risk Intelligence'.

A specialist in financial derivatives, valuations and regulatory compliance, he was previously Head of Alternative Investments Strategies at Reuters in New York, and Director of Risk and Trade Management at Reuters' head office in London. Until joining Reuters, Philippe directed advisory services for banks and securities companies on derivatives risk measurement, hedging and trading strategies, which followed a career dealing securities and derivatives in Europe and Asia. Philippe also advised regulatory authorities, professional associations and exchanges in emerging markets across Asia and directed a financial training institute for many years.

Author of countless articles and white papers, he regularly lectures at high profile seminars and conventions around the world on risk management, hedge fund strategies, and regulatory compliance. A strong advocate of change in risk management methodologies, he had warned about systemic risk since 2005. His blogs and papers on the changing faces of risk management are publicly available at www.valuationrisk.net and other Thomson Reuters sites. Philippe is an active member of the Global Association of Risk Professionals (GARP), of which he co-directs the Geneva Chapter. He also participates to the financial derivatives programmes of leading universities, training and research institutes. He holds a diploma from the ESC Marseille, a member of the French Grandes Ecoles network.

Table of Contents

The essence of Capitalism

The move to models when risk ceased to be managed

The decade of risk management

Risk intelligence precedes risk management

Risk management the human dimension of capitalism

Risks scales and balances

A risk culture is corporate DNA

Distributing Risk Exposure And Sensitivity Across The Enterprise

Identifying risk factors

Specific risk factors

Systematic risk factors

Working with Risk Factors

Approaching risk through sensitivity and scenarios

Root-Risk Factors and Conduits of Sensitivity

Back-testing and maintaining the factors

Working with scenarios

Scenario Definition

High Severity and Worst-Case Scenarios

Aggregating firm-wide risk sensitivity

Aggregating Scenarios

From aggregated risks to distributed risks

The traditional approach by business lines leads to rely on modeling

Distributing risk by risk factors leads to creation of a culture

Distributed risk implies data analysis

Creating and adaptive information workflow

Getting the system to evolve

Moving on to the next step

Empowering Business Units With Risk Management Capabilities

Allocating risk management capabilities

Business managers are risk managers

The role of Executive Risk Committees

The role of Audit and Control units

Mitigation strategies and hedging tactics

Front-line business units

Operational units

Management

Risk Committees and audit controls

Risk independence or indifference to risk?

Role of the shareholders and non-executive directors

Responsibility and accountability

Control and report hierarchy

Risk weighted performance

Principles of risk weighted measurements

From risk appetite to risk policies

Creating An Information Workflow For Continuous Feedback And Informed Decision Making

Risk: The new bond

Dynamic two-way information workflow

Preventive rules for a pre-emptive course of action

The dynamic assessments of risk factor sensitivities

Sensitivity rules and stress tests

Bottom-Up Activity Feedback

Keeping a finger on the pulse

Aggregating scenarios: The actual risk appetite of the firm

Toward a Risk Information Bus for IT Purposes

Enterprise-wide Aggregation

Cross-asset sensitivity aggregation

Cross-division aggregation potential pitfalls

Top Down Decisions and Feedback

Risk dashboards

Pre-emptive decision frameworks

An interactive and adaptive workflow

Hierarchy, decisions, overruling

Deriving a firm's Actual Observed Risk Appetite

Modeling Worst Case Scenarios

Risk Policies Reconciliation

Aliging Funding Strategies And Liquidity Management Tactics With The Corporate Risk Policies

Liquidity, the Ultimate Operational Risk

Maintaining the internal balance

Internal sources of liquidity risks

External sources of liquidity risk

Analysing and Measuring Liquidity Risks

Valuation Driven Liquidity Risks

Market Depth

Over the Counter Markets

Funding Risk

Asset Liability Risks

Systematic sources of liquidity risks

Concentration Risks

For sell-side institutions:

For buy-side institutions:

Managing and Mitigating Liquidity Risks

Laying down the foundations of a corporate strategy

Monitoring Concentrations

Working with risk concentrations

ALM analyses and Liquidity Management

Valuations Risks

Regulatory Risk

Of liquidity risk and correlation

Funding strategy is risk profile

External Communications, Disclosure Policies & Transparency

External communications

Risk, the new media

Disclosure policies

Enhancing transparency

Prices and valuations transparency

Transparency of internal processes and procedures

Transparency of corporate governance rules and external communications

Information exchange for risk intelligence

Proposal for a Global Credit and Collateral Exposure Surveillance Scheme

Proposal for a taxonomy of path dependent derivatives and retail structured products

Risk intelligence ratings

The Regulatory Upheaval Of The 2010S

The Great Unwind

Regulatory reshuffle

Propositions for a regulatory upheaval

Propositions relating to idiosyncratic risks

Propositions relating to systematic risks

Propositions relating to systemic risks

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