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Managing Risks in Commercial and Retail Banking

Book Description

A practical guide to the practices and procedures of effectively managing banking risks

Managing Risks in Commercial and Retail Banking takes an in-depth, logical look at dealing with all aspects of risk management within the banking sector. It presents complex processes in a simplified way by providing real-life situations and examples.

The book examines all dimensions of the risks that banks face—both the financial risks—credit, market, and operational—and the non-financial risks—money laundering, information technology, business strategy, legal, and reputational. Focusing on methods and models for identifying, measuring, monitoring, and controlling risks, it provides practical advice backed up by solid theories, without resorting to the use of complicated mathematical and statistical formulas.

Author Amalendu Ghosh exposes topics that are usually absent in books on managing banking risk—such as design of control framework, risk management architecture, credit risk rating, risk-based loan pricing, portfolio analysis, business continuity planning, and corporate governance.

  • Author has extensive experience with a variety of major banks and institutions worldwide and brings a fresh perspective in the wake of the global finance crisis

  • Presents a novel approach using models of the credit risk rating of different types of borrowers, the methodology for assigning weights for deriving the rating, and the scoring process

  • Covers the essentials of corporate governance and options for credit risk assessment in line with the recommendations made in the New Basel Capital Accord

  • Explains the methodology of risk-based internal audit, including techniques to enable bank branches to switch over from the old transaction-based audit methods

With its logical sequence of the aspects of risk management, the book's layout is ideal for presentations, making it a handy tool for risk management training

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Preface
  6. PART One: Risk Management Approaches and Systems
    1. CHAPTER 1: Business Risk in Banking
      1. 1.1 CONCEPT OF RISK
      2. 1.2 BROAD CATEGORIES OF RISKS
      3. 1.3 CREDIT RISK
      4. 1.4 MARKET RISK
      5. 1.5 OPERATIONAL RISK
      6. 1.6 OPERATING ENVIRONMENT RISK
      7. 1.7 REPUTATION RISK
      8. 1.8 LEGAL RISK
      9. 1.9 MONEY LAUNDERING RISK
      10. 1.10 OFFSHORE BANKING RISK
      11. 1.11 IMPACT OF RISK
      12. 1.12 SUMMARY
    2. CHAPTER 2: Control Risk in Banking
      1. 2.1 HOW CONTROL RISK ARISES
      2. 2.2 EXTERNAL CONTROL AND INTERNAL CONTROL RISKS
      3. 2.3 INTERNAL CONTROL OBJECTIVES
      4. 2.4 INTERNAL CONTROL FRAMEWORK
      5. 2.5 TASKS IN ESTABLISHING A CONTROL FRAMEWORK
      6. 2.6 BUSINESS RISK AND CONTROL RISK RELATIONSHIP
      7. 2.7 SUMMARY
    3. CHAPTER 3: Technology Risk in Banking
      1. 3.1 WHAT IS TECHNOLOGY RISK?
      2. 3.2 RISKS IN ELECTRONIC BANKING
      3. 3.3 SOURCES OF TECHNOLOGY RISK
      4. 3.4 MANAGEMENT OF TECHNOLOGY RISK
      5. 3.5 SUMMARY
    4. CHAPTER 4: Fundamentals of Risk Management
      1. 4.1 RISK MANAGEMENT CONCEPT
      2. 4.2 RISK MANAGEMENT APPROACH
      3. 4.3 RISK IDENTIFICATION APPROACH
      4. 4.4 RISK MANAGEMENT ARCHITECTURE
      5. 4.5 RISK MANAGEMENT ORGANIZATIONAL STRUCTURE
      6. 4.6 SUMMARY
    5. CHAPTER 5: Risk Management Systems and Processes
      1. 5.1 RISK MANAGEMENT POLICY
      2. 5.2 RISK APPETITE
      3. 5.3 RISK LIMITS
      4. 5.4 RISK MANAGEMENT SYSTEMS
      5. 5.5 MANAGEMENT INFORMATION SYSTEM
      6. 5.6 VERIFICATION OF RISK ASSESSMENT
      7. 5.7 HUMAN RESOURCE DEVELOPMENT
      8. 5.8 TOP MANAGEMENT COMMITMENT
      9. 5.9 CAPITAL ADEQUACY ASSESSMENT AND DISCLOSURE REQUIREMENT
      10. 5.10 RISK PRIORITIZATION
      11. 5.11 SUMMARY
  7. PART Two: Credit Risk Management
    1. CHAPTER 6: Credit Problems and Credit Risk
      1. 6.1 GENESIS OF CREDIT PROBLEMS
      2. 6.2 CAUSES OF CREDIT RISK
      3. 6.3 SUMMARY
    2. CHAPTER 7: Identification of Credit Risk
      1. 7.1 MARKET RISK AND CREDIT RISK RELATIONSHIP
      2. 7.2 CREDIT RISK IDENTIFICATION APPROACH
      3. 7.3 CREDIT RISK IDENTIFICATION PROCESS
      4. 7.4 SUMMARY
    3. CHAPTER 8: Credit Risk Rating Concept and Uses
      1. 8.1 CREDIT RISK RATING CONCEPT
      2. 8.2 CREDIT RISK RATING USES
      3. 8.3 CREDIT RISK RATING PRINCIPLES
      4. 8.4 SUMMARY
    4. CHAPTER 9: Credit Risk Rating Issues
      1. 9.1 RATING PRACTICES IN BANKS
      2. 9.2 DESIGN OF THE RATING FRAMEWORK
      3. 9.3 CONCEPTUAL ISSUES
      4. 9.4 DEVELOPMENTAL ISSUES
      5. 9.5 IMPLEMENTATION ISSUES
      6. 9.6 RATING FRAMEWORK OVERVIEW
      7. 9.7 SUMMARY
    5. CHAPTER 10: Credit Risk Rating Models
      1. 10.1 INTERNAL RATING SYSTEMS IN BANKS
      2. 10.2 NEED FOR DIFFERENT RATING MODELS
      3. 10.3 NEED FOR NEW AND OLD BORROWER RATING MODELS
      4. 10.4 TYPES OF RATING MODELS
      5. 10.5 NEW CAPITAL ACCORD OPTIONS
      6. 10.6 ASSET CATEGORIZATION
      7. 10.7 IDENTIFICATION OF MODEL INPUTS
      8. 10.8 ASSESSMENT OF COMPONENT RISK
      9. 10.9 SUMMARY
    6. CHAPTER 11: Credit Risk Rating Methodology
      1. 11.1 RATING METHODOLOGY DEVELOPMENT PROCESS
      2. 11.2 DERIVATION OF COMPONENT RATING
      3. 11.3 DERIVATION OF COUNTERPARTY RATING
      4. 11.4 SUMMARY
    7. CHAPTER 12: Credit Risk Measurement Model
      1. 12.1 RISK RATING AND RISK MEASUREMENT MODELS
      2. 12.2 CREDIT LOSS ESTIMATION—CONCEPTUAL ISSUES
      3. 12.3 QUANTIFICATION OF RISK COMPONENTS
      4. 12.4 CREDIT RISK MEASUREMENT MODELS
      5. 12.5 BACK-TESTING OF CREDIT RISK MODELS
      6. 12.6 STRESS TESTING OF CREDIT PORTFOLIOS
      7. 12.7 SUMMARY
    8. CHAPTER 13: Credit Risk Management
      1. 13.1 GENERAL ASPECTS
      2. 13.2 CREDIT MANAGEMENT AND CREDIT RISK MANAGEMENT
      3. 13.3 CREDIT RISK MANAGEMENT APPROACH
      4. 13.4 CREDIT RISK MANAGEMENT PRINCIPLES
      5. 13.5 ORGANIZATIONAL STRUCTURE FOR CREDIT RISK MANAGEMENT
      6. 13.6 CREDIT RISK APPETITE
      7. 13.7 CREDIT RISK POLICIES AND STRATEGIES
      8. 13.8 EARLY WARNING SIGNAL INDICATORS
      9. 13.9 CREDIT AUDIT MECHANISM
      10. 13.10 CREDIT RISK MITIGATION TECHNIQUES
      11. 13.11 SUMMARY
    9. CHAPTER 14: Credit Portfolio Review Methodology
      1. 14.1 PORTFOLIO CLASSIFICATION
      2. 14.2 PORTFOLIO MANAGEMENT OBJECTIVES
      3. 14.3 PORTFOLIO MANAGEMENT ISSUES
      4. 14.4 PORTFOLIO ANALYSIS TECHNIQUE
      5. 14.5 PORTFOLIO RISK MITIGATION TECHNIQUES
      6. 14.6 SUMMARY
    10. CHAPTER 15: Risk-Based Loan Pricing
      1. 15.1 LOAN PRICING CONCEPT
      2. 15.2 LOAN PRICING PRINCIPLES
      3. 15.3 LOAN PRICING ISSUES
      4. 15.4 LOAN PRICE COMPUTATION
      5. 15.5 SUMMARY
  8. PART Three: Market Risk Management
    1. CHAPTER 16: Market Risk Framework
      1. 16.1 MARKET RISK CONCEPT
      2. 16.2 MARKET RISK TYPES
      3. 16.3 MARKET RISK MANAGEMENT FRAMEWORK
      4. 16.4 ORGANIZATIONAL SETUP
      5. 16.5 MARKET RISK POLICY
      6. 16.6 MARKET RISK VISION
      7. 16.7 SUMMARY
    2. CHAPTER 17: Liquidity Risk Management
      1. 17.1 LIQUIDITY RISK CAUSES
      2. 17.2 LIQUIDITY RISK MANAGEMENT ACTIVITIES
      3. 17.3 LIQUIDITY RISK MANAGEMENT POLICIES AND STRATEGIES
      4. 17.4 LIQUIDITY RISK IDENTIFICATION
      5. 17.5 LIQUIDITY RISK MEASUREMENT
      6. 17.6 LIQUIDITY MANAGEMENT STRUCTURE AND APPROACHES
      7. 17.7 LIQUIDITY MANAGEMENT UNDER ALTERNATE SCENARIOS
      8. 17.8 LIQUIDITY CONTINGENCY PLANNING
      9. 17.9 STRESS TESTING OF LIQUIDITY FUNDING RISK
      10. 17.10 LIQUIDITY RISK MONITORING AND CONTROL
      11. 17.11 SUMMARY
    3. CHAPTER 18: Interest Rate Risk Management
      1. 18.1 INTEREST RATE RISK IN TRADING AND BANKING BOOKS
      2. 18.2 INTEREST RATE RISK CAUSES
      3. 18.3 INTEREST RATE RISK MEASUREMENT
      4. 18.4 MATURITY GAP ANALYSIS
      5. 18.5 DURATION GAP ANALYSIS
      6. 18.6 SIMULATION ANALYSIS
      7. 18.7 VALUE-AT-RISK
      8. 18.8 EARNINGS AT RISK
      9. 18.9 INTEREST RATE RISK MANAGEMENT
      10. 18.10 INTEREST INCOME STRESS TESTING
      11. 18.11 INTEREST RATE RISK CONTROL
      12. 18.12 SUMMARY
    4. CHAPTER 19: Foreign Exchange Risk Management
      1. 19.1 EXCHANGE RISK IMPLICATION
      2. 19.2 EXCHANGE RISK TYPES
      3. 19.3 FOREIGN CURRENCY EXPOSURE MEASUREMENT
      4. 19.4 EXCHANGE RISK QUANTIFICATION
      5. 19.5 EXCHANGE RISK MANAGEMENT
      6. 19.6 EXCHANGE RISK HEDGING
      7. 19.7 SUMMARY
    5. CHAPTER 20: Equity Exposure Risk Management
      1. 20.1 EQUITY EXPOSURE IDENTIFICATION
      2. 20.2 EQUITY EXPOSURE MANAGEMENT FRAMEWORK
      3. 20.3 EQUITY EXPOSURE RISK MEASUREMENT
      4. 20.4 SUMMARY
    6. CHAPTER 21: Asset Liability Management Review Process
      1. 21.1 ASSET-LIABILITY REVIEW
      2. 21.2 LIQUIDITY RISK REVIEW
      3. 21.3 INTEREST RATE RISK REVIEW
      4. 21.4 FOREIGN EXCHANGE RISK REVIEW
      5. 21.5 EQUITY PRICE RISK REVIEW
      6. 21.6 VALUE-AT-RISK REVIEW
      7. 21.7 SUMMARY
  9. PART Four: Operational Risk Management
    1. CHAPTER 22: Operational Risk Management Framework
      1. 22.1 OPERATIONAL RISK CONCEPT
      2. 22.2 OPERATIONAL RISK SOURCES
      3. 22.3 OPERATIONAL RISK CAUSES
      4. 22.4 OPERATIONAL RISK POLICY OBJECTIVES
      5. 22.5 OPERATIONAL RISK POLICY CONTENTS
      6. 22.6 OPERATIONAL RISK MANAGEMENT FRAMEWORK
      7. 22.7 SUMMARY
    2. CHAPTER 23: Operational Risk Identification, Measurement, and Control
      1. 23.1 OPERATIONAL RISK IDENTIFICATION APPROACH
      2. 23.2 OPERATIONAL RISK IDENTIFICATION PROCESS
      3. 23.3 BUSINESS LINE IDENTIFICATION
      4. 23.4 OPERATIONAL RISK ASSESSMENT METHODS
      5. 23.5 OPERATIONAL RISK MEASUREMENT METHODOLOGY
      6. 23.6 OPERATIONAL RISK MEASUREMENT PROCESS
      7. 23.7 OPERATIONAL RISK MONITORING
      8. 23.8 OPERATIONAL RISK CONTROL AND MITIGATION
      9. 23.9 HIGH-INTENSITY OPERATIONAL RISK EVENTS—BUSINESS CONTINUITY PLANNING
      10. 23.10 BUSINESS CONTINUITY PLAN SUPPORT REQUIREMENTS
      11. 23.11 BUSINESS CONTINUITY PLANNING METHODOLOGY
      12. 23.12 OPERATIONAL RISK MANAGEMENT ORGANIZATIONAL STRUCTURE
      13. 23.13 SUMMARY
  10. PART Five: Risk-Based Internal Audit
    1. CHAPTER 24: Risk-Based Internal Audit—Scope, Rationale, and Function
      1. 24.1 INTERNAL AUDIT SCOPE AND RATIONALE
      2. 24.2 RISK-BASED INTERNAL AUDIT POLICY
      3. 24.3 INTERNAL AUDIT DEPARTMENT STRUCTURE
      4. 24.4 SUMMARY
    2. CHAPTER 25: Risk-Based Internal Audit Methodology and Procedure
      1. 25.1 RISK-BASED INTERNAL AUDIT METHODOLOGY
      2. 25.2 RISK-BASED AUDIT PLANNING AND SCOPE
      3. 25.3 RISK-BASED AUDIT PROCESS
      4. 25.4 SUMMARY
  11. PART Six: Corporate Governance
    1. CHAPTER 26: Corporate Governance
      1. 26.1 CORPORATE GOVERNANCE CONCEPT
      2. 26.2 CORPORATE GOVERNANCE OBJECTIVES
      3. 26.3 CORPORATE GOVERNANCE FOUNDATION
      4. 26.4 CORPORATE GOVERNANCE ELEMENTS
      5. 26.5 CORPORATE GOVERNANCE IN BANKS
      6. 26.6 TOWARD BETTER CORPORATE GOVERNANCE IN BANKS
      7. 26.7 SUMMARY
  12. PART Seven: Lessons from the Asian and the United States' Financial Crises
    1. CHAPTER 27: The Causes and Impact of the Asian and the United States’ Financial Crises
      1. 27.1 THE ASIAN FINANCIAL CRISIS CAUSES AND IMPACT
      2. 27.2 RISKS EMERGING FROM THE ASIAN FINANCIAL CRISIS
      3. 27.3 THE IMPACT OF THE U.S. FINANCIAL CRISIS
      4. 27.4 THE U.S. FINANCIAL CRISIS CAUSES AND THE CONCOMITANT RISKS
      5. 27.5 BASEL COMMITTEE ON BANKING SUPERVISION RESPONSE (BASEL III)
      6. 27.6 SUMMARY
  13. About the Author
  14. Index