Group risk & capital
Risk management is at the heart of every financial institution. Banks, asset managers, wealth managers, insurers, CCPs, exchanges, CSDs must all manage several forms of risk in their day-to-day activities. They must also respond and adapt to regulatory requirements such as Basel capital requirements and solvency rules. We provide internationally respected risk expertise to help clients implement best in class risk management processes, tools and models, working closely with our specialist colleagues in regulation, data and technology.
BCBS requirements have ensured that the rest of the world caught up with what the US already knew – that balance sheet and leverage ratios matter. As expert-practitioners in this field, we draw on decades of industry experience working on this topic, enabling us to deploy detailed and first-hand knowledge to the benefit of the financial institutions with whom we work.
The number of valuation adjustments has changed drastically over the past 10 years. What was a simple credit valuation adjustment (CVA) transcribing counterparty risk on derivatives has morphed into a sea of funding valuation adjustments (FVA), capital valuation adjustments (KVA), margin valuation adjustments (MVA), default valuation adjustments (DVA) and more. All these cross valuation adjustments (XVAs) must be calculated both at global portfolio level and at pre-trade, so that the price communicated to the counterparty takes the effects into account accurately. In addition, some XVAs are also subject to risk weighted asset (RWA) CVAs, or additional valuation adjustments (AVAs). We are experts in the individual technical details and inter-relationships of all these areas.
Since the banking crisis of 2008, regulators have pushed the implementation of various liquidity indicators such as the LCR and NSFR. We are specialists in these ratios and on their implications for clients, and on the other key metrics used around the world. We are also experts on intra-day liquidity management, a topic that is rapidly ascending the regulators’ agenda.
We help clients implement new capital requirements for market risk or CCR, using standard or advanced methods (for instance FRTB), as well as assisting clients with the optimisation of the portfolios under capital constraints. We provide specialists to analyse portfolios and design efficient hedging strategies, decide on the choice of clearing on a specific CCP or improve the RWA calculations. We are also experts in evolving credit risk models in order to cope better with specific types of risk, including jump-to-default, emerging markets risks, pegging / de-pegging and correlations.
Financial institutions are obliged to ensure that the models they use for pricing transactions, risk managing their portfolios and calculating capital are fully tested, regularly validated and continuously reviewed through back-testing and benchmarking. This requirement applies to internally developed models as well as to models used in libraries provided by third parties. We provide an independent and fully documented review process, so that our clients can present the results of our analysis to their regulators, auditors and shareholders.
This very particular domain of risk is highly complex, with dedicated risk weighted asset (RWA) calculations, as well as specific regulations such as the STS: the EU’s ‘Simple, Transparent, Standardised regime. Our teams have specialist knowledge of RWA and its regulatory constraints.
Our expertise in stress testing can be applied to all categories of risk. We can assist with the identification and design of stress scenarios and their translation into parameter changes or events (such as defaults), as well as with the computation of their impacts across all portfolios, the aggregation of the results and the analysis of the resilience of the institution facing a stress scenario.
Operational RWA data quality and remediation
Our implementation of this tactical remediation process yielded a material 30% reduction in risk weighted assets.