Integration in balance sheet optimization

Integration in balance sheet optimization

By Thomas Steiner, Partner, BearingPoint

Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

As a Partner at BearingPoint I am responsible for the firm-wide risk management consultancy practice within Banking and Capital Markets practice. While my team is covering a comprehensive service portfolio for financial institution’s risk controlling and management functions, they have a specific focus on Banking Book risk controlling and management, covering IRRBB, Liquidity risk and FTP. Our services cover governance aspects (e.g. set up the 3 lines of defence concept), development of methodology and ALM software implementation.

Prior to that, I was Head of Requirement Engineering at MEAG Asset Management, responsible for the business requirements of the Risk Controlling/Management function. I am an ALM expert with more than 15 years’ experience in a variety of different roles in consultancy projects for international acting banking groups. I am a member of the Global Association of Risk Professionals (GARP).

What, for you, are the benefits of attending a conference like Risk EMEA 2019 and what can attendees expect to learn from your session?

This conference should give particpants a broad view of the latest development within risk management. I hope my presentation will inspire futher thinking in how to better integrate traditional risk and treasury activities within banks.

What are the top challenges you foresee over the coming 6-12 months in relation to IRRBB?

There has been much focus to “tick all boxes” of the IRRBB regulation in the initial implementation effort. To achieve full managerial benefit of the development works and to also become compliant with the spirit of the regulation banks need to improve their internal management processes in the IRRBB area particular with regards to behavioural risk. In many areas, the IRRBB setup has recently moved from a semi-manual process towards a fully automated process. This is e.g. evident in the areas of modelling and assumptions setting. This has raised many challenges with regards to segregation of duties between 1st and 2nd line of defense as well as between IT and business area due sometimes conflicting requirements.

Why is risk measures and financial resource management a key talking point for 2019?

The industry is facing a series of complex financial and risk requirements that have thrown into stark relief the deficiencies of the existing frameworks, capabilities, and organisation in measure financial needs and pass them through to decision making.

What are the key considerations when reviewing ICAAP integration?

The EBA and ECB has laid out a challenging set of requirements that underscore its expectation that the ICAAP and ILAAP should be a central part of how the bank is run. In practice, across banks we observe a spectrum of how the integration requirement in particular is met, ranging from consistently defined scenarios, over an ability to reconcile inputs and outputs from the ICAAP and ILAAP with whatever is done for business-decision-making, to full integration.

What are the benefits and challenges of integrating IRRBB and liquidity risk boundary conditions in B/S simulation?

Over the last decade IRRBB and liquidity regulation has forced banks to invest in the risk methodology and IT infrastructure. Due to the substantial time and cost preasure the potential for added value beyond the regulatory compliance has often been neglected. A bank’s investment for regulatory compliance serve as a good starting point to achieve improved balance sheet optimisation if the bank is able to integrate its improved risk measurements in the balance sheet optimisation in a consistent manner. The optimisation framework can then support the banks strategic decision making process. The specific step changes needed to achive this must be tailored to the specific financial, functional and organisational constraints for each institution.

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