Financial Risk Management

Methods, Tools, Principles and Regulation

Agenda Program Online
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Prague, NH Hotel Prague
Hybrid Training
Both classroom and online training available
Price for online training
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Key points / questions answered:

What are the objectives of risk management in banks?
How to identify and classify risks?
What can we learn from passed crises and defaults?
Can all risks be measured? What if they can't?
What is expected from the risk managers?
How to measure and aggregate risks?
Will the regulatory and the economic approaches converge?
When is risk-taking profitable?
What are the current issues in risk management?
The purpose of this seminar is to introduce the principles and mechanisms of risk management in banks. During the seminar, we address all the main issues relevant to this matter. These are illustrated by a number of business cases and exercises that facilitate the assimilation of the concepts and techniques presented.

The goal of this seminar is to identify and uncover the nature of the risks banks are facing. We start with a brief history of risk management, from the Chevalier de Méré and his taste for money games to the build-up of the modern risk framework and quantitative measurement techniques. This path is littered with trial and errors that have led to crises and catastrophes, some of which are reviewed and analyzed. We then classify the risks and discover how to hunt for new, emerging ones. From there, we study the theoretical foundations of risk measurement and how they are translated into the regulatory and the economic frameworks. As both frameworks coexist in banks, we spend some times understanding their differences and how they articulate.

We then look at the techniques used for measuring risks. They rest on a limited number of simple and powerful principle which translate into techniques adapted to each risk type: credit, market and operating risks. Diverse techniques are explained to assess multiple risk measures that are complementary and need to be articulated. The issue of how to aggregate risks is addressed at this point. A number of exercises and games will facilitate assimilating these principles and techniques.

Further, we addresses the management of risks: You learn how to control and mitigate them, and a number of key issues are addressed: Which risks are profitable and should then be taken, which are not? What are risk budgeting and risk appetite? How to price risk properly? What is expected from Risk Management professionals and how do they relate to other functions in the bank? Finally we address the most pressing risk issues banks are currently facing: How to deal with the increasing regulatory pressure? How to fulfill the new resolution constraints? What impact of IFRS 9? How will Fintech transform the way banks handle their risks?

We finish the seminar with a series of exercises/games aimed at rehearsing all the major elements learned during the course: Risk identification, measurement and aggregation; risk control, mitigation and management; and finally risk-return issues and current concerns.

Program of the seminar: Financial Risk Management

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.15 Introduction to Financial Risk Management

A brief history of Risk Management
  • The Birth Of Mathematical Tools
    • Probabilities, Gaussian and non-Gaussian statistics
  • Always Larger Markets
    • Bartering, town markets, stock markets, financial markets
  • Finance and Regulation, The Mouse and The Cat
    • Quants, bubbles and systemic risks
    • Crisis and catastrophes
Risk Identification and Classification
  • Applying The Risk Framework Of Nuclear Events To Financial Risks
    • Risks that can be identified and risks that cannot
    • Risks that can be quantified and risks that cannot
  • Risk Classification
    • Is the credit, market, operational risk segmentation good enough?
    • What business models generate what risks?
    • Adapting the classification of risks to the activities of the bank

12.15 - 13.15 Lunch break

13.15 - 16.30 Quantitative Techniques for Risk Measurement

Theoretical Basis Of Risk Assessment
  • Non-Statistical Approaches
    • What-if and scenario analysis
  • Statistical Approaches
    • VaR, CVar, Expected Shortfall
    • Handling correlations, GARCH, OUCH, copulas
    • The limits of the statistical approaches
Regulatory Vs. Economic Approaches
  • The Regulatory Approach
    • Basel 1, 2 and 3
    • The standardized, foundation and advanced approaches
  • The Economic Approach
    • Economic capital concepts and guidelines
    • IFRS 9
  • Articulating The Two Approaches
  • Case Study: Dexia

09.00 - 09.15 Recap and warm up

09.15 - 12.15 Risk Measurement

Credit Risk
  • Credit Risk Parameters
    • EAD, PD, LGD
    • Concentration, diversification and correlations
  • Credit risk Frameworks
    • Basel IRB formula, RWA credit, Basel 2/3 solvency ratios
    • Pillar 2 ICAAP, TRIM, Basel 4
    • Economic Capital and IFRS 9
  • Credit Risk Models
    • Models for Corporates: Empirical and structural types
    • Models for Retail: From scorecards to Markov chains
    • Regulatory stance on credit risk models: Basel 3 final
  • Case Study: The Sovereign Debt Crisis
Market Risks
  • Market Factors And Models
    • The greeks: Alpha, beta, gamma
    • VaR and Expected Shortfall, tail risks
  • Market Risks Frameworks
    • Market risks under Basel III
    • FRTB, Standardized Approach and IMA
    • Risk dynamics and portfolio management
  • Case Study: Credit National

12.15 - 13.15 Lunch break

13.15 - 16.30 Risk Measurement (cont.)

Balance Sheet Risks
  • Measuring The Interest Rate Risk Of The Banking Book
    • Building up the interest rate gaps
    • Sensitivity and duration, embedded options, prepayments
  • Measuring Spread And Funding Risks
    • The articulation between liquidity, spread and funding risks
    • Accounting considerations
  • Assessing Liquidity
    • Liquidity gap and ratios, LCR and NSFR
  • Case study: Credit National
Other Risks and how to Aggregate all Risks
  • Assessing Operating Risks
    • Operational, business and residual risks
  • Aggregating Risks

09.00 - 09.15 Recap and warm up

09.15 - 12.15 Managing the Risks of the Bank

Risk Management in Banks
  • Organization Of The Risk Management Function
  • Expected Internal And External Disclosures
    • Regulatory disclosures
    • Accounting disclosures
    • Internal management reporting
  • Funds Transfer Pricing
    • Locating risk management in the right expertise center
    • Financial and commercial risks and margins
  • IT And Data Concerns
    • Categories of IT tools used to manage risks
    • Emerging technologies, machine learning, report teaching
Controlling Risks, Hedging And Mitigation
  • Tools For Risk Control And Mitigation
    • Limits, securitization and hedging
  • Hedging: Value And Cash Flow Hedges
    • Interest rate and credit derivatives
    • Value and cash flow hedges
    • Micro and micro hedges
  • Case Study: LTCM

12.15 - 13.15 Lunch break

13.15 - 16.30 Perspectives on Risk

Risk and Finance and the Management Of the Bank
  • The management mechanisms of the bank
    • Top to bottom: Capital allocation and global limits
    • Bottom-up: Committees and Reporting
  • The Convergence Of Risk And Finance Operating Models
    • Different objectives, different cultures, different silos
    • IFRS 9 breaks the silos
  • Processes Supporting Risk-Return Type Decisions
    • RAROC or how to price risk
    • Financial planning
Current Issues
  • Regulatory Pressure And Banks Profitability
  • Sovereign and Systemic Risks
  • IFRS 9, A Game Changer
  • Fintechs and Blockchain

Seminar wrap up and final game

Training catalogue in PDF
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