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Business Analytics To Manage Financial

RiskMark Wilcock, Zomalex Ltd.

Bronze

Silver

Agenda

• Why does Risk Management matter?• 5 easy ways to lose money• The regulators and their regulations• Data / Aggregation / Reporting – challenges &

approaches• Some interesting books & articles

mark.wilcock@zomalex.co.uk

Royal Bank Of Balham

Save with our NiceSave savings rangeExcellent saving rates – best on the market!How much will you deposit?a) £0 b) £50,000c) £150,000

What could possibly go wrong?

Royal Bank Of Balham

• Would you deposit your money? What interest rate?

• Would you buy shares in RBB? What dividend rate?• If you were a trader in RBS, would you enter a long

running trade with RBB?• What are Mark Carney’s concerns about RBB?

5 easy ways to lose money

• Asset prices drop (market risk)• A borrower or issuer defaults (credit risk)• Your counterparty does not pay up (counterparty

credit risk)• You run out of cash to pay immediate bills (liquidity

risk)• Rogue trader or cock-up (operational risk)

Got to keep cool in a crisis

Types Of Data

• Trades and positions• Market prices and time-series history• Counterparties • Issuers• Firm hierarchies • External reference – countries / currencies• Results – sensitivities and risks

A typical market risk report

Mark

CoB Book

CoB Limit Utilisation (%)

Economic Capital 100 200 50VaR 102 150 68 CoB Change CoB Change Ccy CoB Change

Delta (1) 110 105 105 BASF 1,000 100 Financial 1,000 100 EUR 100 10

Gamma 120 121 99 FTSE 100 Index -909 -83 Tech 909 -83 JPY -87 -9Vega 130 131 99 Barclays plc. 826 69 Consumer 826 69 GBP 76 8Correlation 140 150 93 Prudential plc. -751 -58 Industrial 751 -58 BRL -66 -7Theta 20 16 125 Cube Logic 683 48 Energy 683 48 HKD 57 6Dividend Risk 5 4 125 Nikkei 225 Index -621 -40 Basic Materials 621 -40 NZD -50 -5Stress Scenario ABC 10 11 91 HSBC 564 33 Pharmaceutical 564 33 AUD 43 4Stress Scenario XYZ 20 19 105 Oracle -513 -28 INR -38 -4

Zomalex plc. 467 23 CAD 33 3BP plc. -424 -19

P&L ladder

FX ExposureDelta By Issuer Delta By SectorUnderlier Issuer

22 September 2011 Global Derivatives USD'k

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Market Risk Report Examples

The Regulators

BIS and BCBS

National regulators• FRB (US)• PRA (UK)• FINMA (CH)Regulatory Capital

Fundamental Review Of The Trading Book (BCBS 265)All Change!• Change method of calculating results• For ~100 desks rather than a few legal entities• Report daily rather than annually• Check 5 times a day rather than end of day• Run both regulator’s and in-house calcs• Back test torture – put your money where your

model is

BCBS 239 Data, Aggregation & Reporting• Governance

• Especially in a crisis

• Aggregation• Integrity & accuracy• Drill down

• Reporting• Comprehensive• Accurate• Clear• Timely• Actionable• Right audience

Wiring Diagram Of A Bank (Anonymised)

Data

Challenges• Data Quality• Accurate? Timely?

Complete? • Independently Verified?

Audited?

Approaches• Front end golden source

– and fewer systems• Keep it granular –

aggregate at last moment• Data dictionary• Culture and ownership• Using EDA tools like

Power BI to find quality issues

Aggregation

Challenges• Adjustments• Losing vital information

along the way • Failures in calcs• As fast as possible • Large size of risks &

results

Approaches• Automation• Workflow, sign-off and

approvals, audit challenge

• Common Golden hierarchies

• Operational Dashboards• Lineage & Traceability

Reporting

Challenges• Canned reports backlog• Limited analysis

capability• Ugly complex reports• Materiality?

Relevance?

Approaches• More interactive dashboards,

fewer canned reports• Self-reliant reporting in Power

BI• Good dashboard design• Forward looking reports• Moving to Scrum teams?• Hygiene: security,

performance, distribution, all reports in one place

Interesting Reading

• http://zomalex.co.uk/a-laymans-guide-to-bcbs239/

Thank you

mark.wilcock@zomalex.co.uk

zomalex.co.uk

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