With over 30 years’ experience of risk management in banks, Mark Laycock provides a comprehensive but succinct non–technical overview of risk and its governance in financial institutions. Bridging the gap between texts on governance and the increasingly technical aspects of risk management the book covers the main risk types experienced by banks – credit, market, operational and liquidity – outlines those risks before considering them from a governance perspective including the Board and Executive Management. Addressing terminology issues that can confuse dialogue, and by providing a bibliography alongside each chapter for more detailed discussion of the topic this book will ground readers with the knowledge they require to understand the unknown unknowns. INDICE: About the Author xiii 1 Introduction 1 1.1 Introduction 2 1.2 Boards 3 1.3 Why Now? 5 1.3.1 Governance Expectations 5 1.3.2 Technical Changes 6 1.4 Rest of the Book 7 Further Reading 9 PART I RISK OVERSIGHT 11 2 Risk – An Overview 15 2.1 Terminology 16 2.1.1 Definition of Risk 16 2.1.2 Risk 17 2.1.3 Uncertainty 18 2.1.4 Precautionary Principle 21 2.2 Role of Banks and Risk 22 2.2.1 In the Beginning 23 2.2.2 Where are We Now? 24 2.3 Sources of Risk and Uncertainty 25 2.3.1 External Sources of Risk and Uncertainty 25 2.3.2 Internal Sources of Risk and Uncertainty 27 2.3.3 Systemic Risk 27 2.4 Capital 28 2.4.1 Confidence Interval 29 2.4.2 Book Capital 32 2.4.3 Economic Capital 32 2.4.4 Regulatory Capital 33 2.5 Issues to Consider 34 Further Reading 35 3 Risk Oversight 37 3.1 Introduction 38 3.2 Perspective 39 3.2.1 Bottom 40 3.2.2 Top 41 3.2.3 Middle 42 3.3 Models 43 3.4 Risk Framework 45 3.4.1 Three Lines of Defence 45 3.4.2 Risk Owners 48 3.4.3 Corporate Risk Management Functions 49 3.4.4 Chief Risk Officer 51 3.4.5 Policies, Standards and Procedures 53 3.5 Biases 54 3.6 Issues to Consider 56 Further Reading 57 4 Risk Management 59 4.1 Introduction 60 4.1.1 Definition of Risk Management 60 4.2 Terminology and Components 61 4.2.1 Cause and Effect 61 4.2.2 Exposure and Event 63 4.2.3 Effects and Consequences 64 4.3 Risk Management Cycle 65 4.3.1 Identify the Risk 68 4.3.2 Assess the Risk 69 4.3.3 Evaluate the Risk 70 4.3.4 Manage the Risk 70 4.3.5 Monitor and Review the Risk 72 4.3.6 Escalation and Reporting 72 4.4 Issues to Consider 73 Further Reading 74 5 Risk Appetite 75 5.1 Introduction 76 5.2 Terminology and Concept 77 5.3 Stakeholders 79 5.4 Expressions of Risk Appetite 82 5.4.1 Board–level Risk Appetite Considerations 82 5.4.2 Cascading Risk Appetite Down the Firm 83 5.4.3 Dynamic Aspects of Risk Appetite 86 5.5 Framework 87 5.6 Risk Reporting 91 5.7 Issues to Consider 94 Further Reading 95 6 RiskCulture 97 6.1 Introduction 98 6.2 Terminology 100 6.2.1 Definitions and Descriptions of Risk Culture 100 6.2.2 Expressions of Risk Culture 102 6.2.3 The Individual 104 6.2.4 Groups and Teams 106 6.3 Assessing and Influencing Risk Culture 108 6.3.1 Assessing Risk Culture 109 6.3.2 Influencing Risk Culture 112 6.4 Monitoring Risk Culture 117 6.5 Issues to Consider 118 Further Reading 119 PART II SPECIFIC RISKS 121 7 Credit Risk 125 7.1 Introduction 126 7.2 Definition of Credit Risk 127 7.3 Framework 130 7.4 Risk Appetite Metrics 134 7.4.1 Simplest Metrics – Credit Exposure 135 7.4.2 Intermediate Metrics – Probability of Default 137 7.4.3 Complex Metrics – Loss Given Default 142 7.4.4 Economic Capital 145 7.5 Credit Risk Management 149 7.5.1 When Things are Running Smoothly 149 7.5.2 When Things are Not Running Smoothly 150 7.5.3 Reducing Credit Risk 152 7.6 Issues to Consider 158 Further Reading 158 8 Market Risk 159 8.1 Introduction 160 8.2 Definition of Market Risk 161 8.3 Market Risk Framework 164 8.3.1 Roles in the Framework 167 8.3.2 Risk Appetite and Economic Capital 169 8.4 Market Risk Estimation 171 8.4.1 Simplest Metrics – Exposures and Stop–Loss 172 8.4.2 Intermediate Metrics – Risk Factors 173 8.4.3 Complex Metrics – Portfolio Simulation 177 8.4.4 Economic Capital 180 8.5 Market Risk Management 183 8.5.1 Performance Measurement 184 8.5.2 Back Testing 184 8.5.3 Market Liquidity of Positions 185 8.5.4 Discontinuities 186 8.5.5 Stress Testing 187 8.6 Issues to Consider 188 Further Reading 188 9 Operational Risk 191 9.1 Introduction 192 9.2 Definition of Operational Risk 193 9.3 Operational Risk Framework 196 9.4 Operational Risk Estimation 202 9.4.1 Indicators 202 9.4.2 Models 204 9.5 Operational Risk Management 208 9.5.1 Operational Risk Management Objectives 208 9.5.2 Sources of Risk Information 209 9.5.3 Operational Risk Focal Points 211 9.5.4 Risk Transfer 212 9.6 Issues to Consider 213 Further Reading 214 10 Liquidity Risk 215 10.1 Introduction 216 10.2 Definition of Liquidity Risk 217 10.3 Liquidity Risk Framework 220 10.3.1 Roles in Funding Liquidity Risk Management 221 10.3.2 Cost of Funding 222 10.4 Liquidity Risk Measurement 224 10.4.1 Short Term 225 10.4.2 Very Short Term 227 10.4.3 Long Term 228 10.5 Liquidity Risk Management 229 10.5.1 Overview 230 10.5.2 Stress Testing 232 10.6 Issues to Consider 233 Further Reading 234 11 Other Risks 235 11.1 Introduction 236 11.2 Reputational Risk 237 11.3 Strategic Risk 239 11.4 Business Risk 241 11.5 Other Market Risks 242 11.6 Model Risk 244 11.7 Supplier Risk 247 11.8 Resources 249 11.9 Issues to Consider 251 Further Reading 252 12 Risk Interactions 253 12.1 Introduction 254 12.2 Risks as Frequency and Severity Drivers 256 12.3 Risk Interactions 259 12.3.1 Credit Risk with a Market Risk Severity Driver 259 12.3.2 Credit Risk with an Operational Risk Severity Driver 262 12.3.3 Market Risk or Operational Risk as the Severity Driver 263 12.3.4 Funding Liquidity Risk with an Operational Risk Severity Driver 264 12.4 Implications for Risk Management and Measurement 266 12.5 Issues to Consider 269 Further Reading 269 PART III REGULATORY ENVIRONMENT 271 13 Regulatory Environment 275 13.1 Introduction 276 13.2 Structure of Prudential Regulatory Process 277 13.2.1 Mapping the Regulators 279 13.2.2 Impact on Firms 281 13.3 Scope of Prudential Regulation 286 13.3.1 Pillar 1 – Minimum Capital Requirements 288 13.3.2 Pillar 2 – Supervisory Review Process 295 13.3.3 Pillar 3 – Market Discipline 297 13.4 Regulatory Influence 299 Further Reading 303 Disclaimer Regarding Excerpts from S&P Materials 305 Index 307
- ISBN: 978-1-118-49742-5
- Editorial: John Wiley & Sons
- Encuadernacion: Cartoné
- Páginas: 336
- Fecha Publicación: 24/01/2014
- Nº Volúmenes: 1
- Idioma: Inglés