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FINANCIAL MARKET COURSES

Risk Management

Courses In This Course

A healthy banking sector is crucial to the health of a developed economy. Banks ‘oil the wheels‘ of the economy through providing credit and funding. The financial crisis highlighted the damage that poor risk management can cause to both individual banks and the overall financial system. While there is nothing new about bank risk (banks have been failing since they were invented), something clearly went awry as the events of 2007-09 testify.

Objectives

This course describes in detail the identification, measurement, and management of the main categories of risk to which banks are exposed, namely:

Interest rate risk

Market risk

Liquidity risk

Credit risk and counterparty credit risk (CCR)

Operational risk

 

It also describes the use of stress tests as a supplement to other risk measures, as well as the central role of senior executives in creating an appropriate risk management framework and providing the leadership that generates a risk culture throughout an institution.

Learner Profile

This course is designed for:

Senior managers

New recruits to banking and financial organizations

All risk management personnel

Treasury department staff

Operations and support staff

Finance and accounting staff

IT staff

Compliance and regulatory staff

  •    RISK MANAGEMENT - AN INTRODUCTION

    Overview

    Banks are in business in order to generate returns for their stakeholders. To achieve this, they must take risks and embed them in the products and services they provide. Risk management has become ever more important as the complexity of banking has increased and regulators attempt to more closely match capital with risk profiles. From a regulator’s point of view, the most desirable aspect of banking is survivability rather than profitability – and the key to survivability is risk management.

     

    This course looks at the links between risk, return, and survival, in addition to outlining the main types of risk that banks face and the key elements of an effective framework for the management of these risks.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Financial Markets – An Introduction

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  •    RISK - MEASUREMENT & MANAGEMENT

    Overview

    Banks in recent years had been feeling increasingly sanguine about their ability to deal with risk. However, the events between 2007 and 2009 eradicated any complacency in the area. The complexities and subtleties of financial risk generated some unpleasant surprises, despite the extensive advances in the quantitative and qualitative work performed in the area. This course examines the foundations of both risk measurement and management, and analyzes the increasing need for banks to pay attention to the regulatory context.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Risk Management – An Introduction

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  •    INTEREST RATE RISK - IDENTIFICATION

       & MEASUREMENT

    Overview

    Historically banking was seen as a simple business, but things have changed in recent times. As new products and services appear in the industry, they are affected by interest rates in different ways. For much of the 20th century, interest rates in major economies were docile creatures. There was little variation in absolute rates, and the term structures (yield curves) were mildly positive. More recent decades saw a dramatic change. Rates and curves became much more volatile, and yield curves would move from positive to negative (or vice versa) in short periods of time.

     

    This course – the first of two on managing interest rate risk – looks at the issues surrounding the identification of this type of risk and the subsequent measurement of it. A second course will focus on the structures banks put in place to manage interest rate risk and the various approaches to such management.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Risk – Measurement & Management

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  •    INTEREST RATE RISK - MANAGEMENT

    Overview

    Interest rate risk is a phenomenon that is integral to the nature of banking. It is not always desirable to eliminate this risk, even if it is possible to do so, because banks would be denying themselves opportunities and hampering their ability to handle customer business profitably.

     

    This course looks at the structures banks put in place to manage interest rate risk and the various approaches to such management – from ‘passive’ responses such as the imposition of limit systems to ‘active’ responses involving hedging rate risk via derivatives.

    Course Duration

    50 mins

    Prerequisite Knowledge

    Interest Rate Risk – Identification & Measurement

    Derivatives – An Overview

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  •    MARKET RISK - IDENTIFICATION &

       MEASUREMENT

    Overview

    Market risk is the risk that the value of an institution’s positions may rise/fall due to changes in the market value of financial instruments. This may take the form of gains/losses arising from traded or non-traded positions. There are many influences on market positions, but the key drivers are interest rates, equity prices, foreign exchange rates, and commodity prices.

     

    This course addresses some key issues associated with market risk in banking institutions: Where does it come from? How can it be measured? What are the difficulties associated with such measurements? A subsequent course will look at how market risk can be managed and the regulatory context associated with this form of risk.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Risk – Measurement & Management

    Derivatives – An Overview

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  •    MARKET RISK - MANAGEMENT & REGULATION

    Overview

    The previous course – Market Risk – Identification & Measurement – looked at the first two elements of the market risk management framework. This course moves beyond the identification and measurement of market risk to look at the structures banks put in place to manage market risk. The course also examines how regulators are continuously attempting to ensure that banks hold sufficient capital to cover market risk, while also looking at other regulations that can help to rein in the excessive risk-taking that is perceived to have played a major role in the financial crisis.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Market Risk – Identification & Measurement

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  •    LIQUIDITY RISK - IDENTIFICATION &

       MEASUREMENT

    Overview

    Liquidity risk is inherent in a bank’s core business of maturity transformation. Management of this risk involves identifying and measuring the cash needs of a bank and then satisfying those requirements – in good times and bad. In the wake of severe liquidity difficulties encountered during the financial crisis, regulators have highlighted the importance of liquidity risk management within financial institutions and have reviewed the relevant legislation.

     

    This course – the first of two on managing liquidity risk – looks at the issues surrounding the identification of this type of risk and the subsequent measurement of it. A second course will focus on the structures banks put in place to manage this risk, as well as examining the liquidity risk regulatory environment.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Interest Rate Risk – Identification & Measurement

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  •    LIQUIDITY RISK - MANAGEMENT & REGULATION

    Overview

    The previous course – Liquidity Risk Management (Part I) – looked at issues around the identification and measurement of liquidity risk. This course extends that analysis to describe how banks actually manage liquidity risk. Sound management of this risk can reduce the probability of serious problems occurring. The course also examines how regulators are becoming increasingly pro-active in establishing rules to be followed internally by institutions as well as in managing overall market liquidity.

    Course Duration

    50 mins

    Prerequisite Knowledge

    Liquidity Risk – Identification & Measurement

    Derivatives – An Overview

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  •    COUNTERPARTY CREDIT RISK

       (CCR) - AN INTRODUCTION

    Overview

    The global financial crisis focused attention on risks beyond 'simple' measures of credit exposure. Among many other issues, the crisis highlighted the problem of counterparty credit risk (CCR) when the demise of an institution causes losses in financial instruments where the credit of the counterparty is not referenced directly. In particular, the linkages between derivatives counterparties and the associated credit risks were at the root of concerns over the collapse of Lehman Brothers and the bailout of AIG.

     

    This course analyzes how CCR is generated within financial markets and shows how the scale of exposure can be initially assessed.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Credit Risk – Identification & Measurement

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  •    COUNTERPARTY CREDIT RISK

       (CCR) - MEASUREMENT

    Overview

    In recent years, accounting regulations and regulatory oversight have mandated that firms measure and manage their CCR exposure. These requirements generate a significant burden as regards data aggregation and the creation of complex measurement models. In addition, a major organizational development has been the creation of 'CVA desks' dedicated to active management of CCR. Further, the financial crisis has ensured that regulatory developments, as well as measurement and management techniques, are constantly evolving in this area.

     

    This course moves beyond the identification of counterparty credit risk and focuses on the way it is measured today, while understanding that 'the only constant is change'.

    Course Duration

    50 mins

    Prerequisite Knowledge

    Counterparty Credit Risk (CCR) – An Introduction

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  •    COUNTERPARTY CREDIT RISK

       (CCR) - MANAGEMENT

    Overview

    Once an institution has estimated its counterparty credit risk exposure, it must decide on the best method for managing this risk. A variety of risk management tools and techniques are available. This course describes some of these, focusing on both settlement risk and pre-settlement risk. It also looks at how a CVA desk works and how it charges for its services. Finally, capital adequacy requirements and the regulatory perspective relating to CCR are examined.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Counterparty Credit Risk (CCR) – Measurement

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  •    OPERATIONAL RISK - IDENTIFICATION &

       MEASUREMENT

    Overview

    When people think of banking as a risky business, they are generally concerned with fundamental financial exposures such as credit or interest rate risk. However, the risks faced by banks today stretch well beyond these traditional banking exposures. Technological innovation, growing complexity, and ever-bigger transactions have increased the potential for losses due to ‘non-financial’ causes. Modern-day institutions must deal with the full gamut of risk, from trade processing errors to rogue traders, technology failures to terrorist attacks. These non-financial types of risk are generally classified under the umbrella term 'operational risk'.

     

    The identification, measurement, and management of operational risk is thus a real issue for banks today. But what exactly is operational risk, and how should a bank deal with it? This course addresses several aspects of these issues in detail.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Risk – Measurement & Management

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  •    OPERATIONAL RISK - MANAGEMENT &

       REGULATION

    Overview

    Operational risk is not new – it has existed ever since the first bank opened its doors for business. What is relatively new, however, is how modern-day financial institutions manage this category of risk. In the past, banks managed OpRisk almost exclusively through internal control mechanisms, supplemented by the internal audit function. While these remain very important, OpRisk management has evolved into a discipline in its own right with specialized personnel, policies, procedures, reporting, measurement techniques, and related technology.

     

    This course looks in detail at this more holistic approach to managing this key category of risk. It also describes the Basel requirements for measuring and managing OpRisk, which will impact on how individual institutions organize their own risk frameworks.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Operational Risk – Identification & Measurement

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  •    STRESS TESTING - AN INTRODUCTION

    Overview

    Value at risk (VaR) techniques have been a mainstay of financial risk management since the 1990s. If a bank uses a 99% confidence level to calculate its value at risk, it generally expects to suffer a loss exceeding the VaR on one day out of every 100. What happens, however, on the one day when the VaR is exceeded? How large is the loss on this day? Could this be the one bad day required to ‘break the bank’?

     

    The criticisms that VaR was poor at estimating risk under non-normal conditions were seen as somewhat academic during the benign financial conditions of the early years of the century. However, there has always been an understanding of the need to go beyond VaR methods in order to gain a more holistic view of risk exposures. By its nature, stress testing compels risk managers to assess linkages between events and to more fully understand the nature of risk exposures.

     

    The global financial crisis damaged the reputation of some risk measurement techniques, including stress tests. However, the response has been not to abandon stress testing but instead to strengthen and extend it. This course describes how the practice of stress testing has developed within financial risk management in recent years and highlights its growing importance following the events of the crisis. It also addresses the different types of stress test in terms of both institutional and regulatory contexts.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Risk – Measurement & Management

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  •    RISK MANAGEMENT FOR SENIOR EXECUTIVES

    Overview

    This course is designed to identify the most important aspects of bank risk management processes and show how senior executives are central both to the construction of an appropriate framework and to the leadership that generates a risk management culture.

     

    Note that the course is emphatically not a detailed description of individual risk management issues – as a senior executive, you may be comfortable with most of these issues already (if not, the detailed information is located in separate, specific courses). The approach in this course is to provide an overview of where the key risks arise and the core management issues contained in these risks.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Not applicable

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