Risk Management in Banks
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Risk Management in Banks Course
Introduction:
Risk management in the banking sector has undergone significant transformation in the past decade, largely driven by regulatory measures implemented following the global financial crisis and the subsequent imposition of fines. However, there are notable trends indicating that risk management will undergo even more profound changes in the coming decade.
This 10-day course is designed to cultivate an appreciation for the significance of operational risk management in the banking and finance industry. It aims to enhance participants' understanding of the potential impact of operational risk.
The course places a strong emphasis on the practical implications of operational risk rather than merely focusing on theoretical concepts. Real-world examples and case studies are incorporated throughout the program to provide practical insights.
The objective is for participants to not only gain a better understanding of operational risk but also to develop improved strategies for managing it effectively.
By the end of the course, participants will have gained a comprehensive understanding of how risks are classified, measured, monitored, and controlled within banks, along with an awareness of the corresponding regulatory requirements.
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