By John R. Morrison, Director, Global Markets Trading Risk, Credit Suisse.
John, can you tell the Risk Insights readers about yourself and your professional experiences?
I have been a Director in the Global Markets Trading Risk group within Credit Suisse for the last six years. In addition to my day-to-day market and credit risk management responsibilities as a risk practitioner, I work in the core CS team delivering the new FRTB market risk framework within the bank. My role is to assist on industry and regulatory advocacy around the new rules and provide subject matter advice into the bank’s formal FRTB Program. I also manage a design authority focused on highlighting and resolving issues of design and implementation of FRTB requirements. My background includes eleven years running the Portfolio Review Group within the investment bank of Dresdner Kleinwort Wasserstein in New York and London. I hold an MBA in Analytic Finance and Economics from the University of Chicago.
We are looking forward to your presentation at the 2nd Annual Fundamental Review of the Trading Book Summit where you will be addressing the increased data requirements. Why do you believe this is a key talking point at the Summit?
The interplay of trade data, reference data, and market data within the new market risk framework of FRTB is particularly important across the key elements of eligibility tests for the Internal Models Approach, as well as the computations mandated within the Standardised Approach. The ability to pass eligibility tests is predicated on a front-to-back consistency of data within banks. The margin for potential failure is razor thin, and the capital implications are potentially severe.
How does BCBS 239 tie into the data requirements?
The completeness, timeliness, accuracy, and consistency of data required by BCBS 239 is fundamental to successful implementation of FRTB. Banks need to be far into their journey toward full compliance with risk data and reporting principles in order to have a fighting chance of minimising the market risk RWA inflation associated with FRTB requirements.
Why is it important to source good quality data?
The primary business capabilities impacted by FRTB center on the need to manage capital and optimise its usage across trading desks – some of which are on standard rules – and some of which are on internal models. The ability for FO, CRO, and CFO to do this effectively requires a robustness of data inputs into front-to-back processes and calculations. Efficient processes require that controller time be spent on value added analysis, and not remediation of bad data.
How do you see the role of the market risk professional changing over the next 6-12 months?
Market risk RWA has become the third most important capital consideration after credit risk and operational risk RWA. Market risk professionals need to increasingly become generalists as silo-thinking and insular management by risk type will inevitably lead to short sighted decision-making and ineffective capital management. This will become increasingly clear as CVA (Credit Valuation Adjustment) is brought within the formal market risk framework, and as the implementation of a capital floor by regulators across the three risk types takes shape.
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