Under the new Basle
Guidelines, all financial institutions subject to local banking laws will soon be required
to operate under dramatically different risk exposure rules. Risk Management and Capital
Adequacy provides details on the key risk approaches under these new guidelines and is the
first book to analyze if and how they can be integrated. From conceptual frameworks to
analyses of models and approaches, it provides a solid reference source for the
information that everyone in risk management will soon need to know.
A Step-by-Step Approach for
Integrating Market, Credit, and Operational Risk Management--While Complying with New
Basel Accord Guidelines
For financial institutions
around the world, the work involved in managing market, credit, and operational risk
exposures--as well as the capital required to support such exposures--will change
dramatically under the new Basel Accord guidelines. Risk Management and Capital Adequacy
is the first book to examine how institutions can streamline programs by, wherever
possible, integrating and simplifying risk management strategies and techniques.
From analyses of the latest
models and frameworks to case studies and examples of the devastating effects of unfocused
or insufficient risk management, this in-depth examination reveals:
- Building blocks for
constructing an integrated, effective risk management framework
- The three pillars of the
Basel Accord--and what institutions must do to comply with each
- Details behind financial
disasters, from LTCM to Barings, and how they could have been prevented
While banks have an
institutional interest in managing risk exposures, they also have a competitive interest
in minimizing the capital required to offset those exposures. Risk Management and Capital
Adequacy is the first book to outline an integrative framework for managing risks, and
complying with the Basel Accord requirements, in the most cost-effective,
capital-efficient, and competitively sound possible ways.
The effective management of
risk is a front-and-center topic for financial institutions. Charged with meeting
everything from the newly fluid realities of global markets to the inflexible requirements
of the Basel Accords, institutions are finding they must replace formalized and normative
approaches with new types of risk management. These programs must be detailed enough to
address the risks of todays dynamic markets yet adaptable enough to meet the needs of
individual institutions and their requirements--while at the same time allowing
decision-makers to demonstrate their willingness and capability to effectively handle
unseen risk and increase shareholder value.
Risk Management and Capital
Adequacy examines and explains todays key approaches for understanding and managing
market, credit, and operational risk. The first book to provide practitioners with
straightforward and hands-on techniques for integrating key risk management approaches,
this all-inclusive resource covers topics such as:
- The history of modern risk
management
- Regulatory mechanisms for
managing risk
- Conceptual approaches for
modeling market, credit, and operational risk
- Modern Portfolio Theory and
the Capital Asset Pricing Model
- Uses and limitations of
Value at Risk
- The BIS risk-based capital
requirement framework
- KMVs credit monitor model
- Differences in credit versus
market risk models
- KPMGs Loan Analysis System
and other risk-neutral valuation approaches
- Products with inherent
credit risks
- Capital adequacy issues from
regulatory and industry perspectives
- Basel Committee on Banking
Supervision and the New Basel Capital Accord
- Case studies of
Metallgesellschaft, Sumitomo, LTCM, and Barings
Under the new Basel
guidelines, all financial institutions subject to local banking laws will be required to
adopt and operate under dramatically different risk exposure rules and guidelines. Risk
Management and Capital Adequacy provides banking executives with an integrated risk
management framework that is as seamless to implement as it is self-explanatory and
complete. It is todays most across-the-board examination of where risk management stands
today, which rules and guidelines are likely to change in the future, and how institutions
can establish programs that meet risk management imperatives, limit risk capital
requirements, and provide for the integration of risk management to cover the global
spectrum of todays financial arena.
Author Biography
Reto Gallati, Ph.D., is
deputy chief risk officer at Putnam Investments. A visiting professor at MITs Sloan School
of Management, Dr. Gallati has also worked in risk management at KPMG, Goldman Sachs, and
Crédit Suisse and has been an instructor at Boston University, Harvard, and the
University of Zurich.
554 pages