Evolution of Enterprise Risk (Review Report)

Table of Contents

• Overview
  • Catalyst
  • Summary
  • Methodology
• Executive Summary
  • Introduction
  • The Evolution of Enterprise Risk Management (Market Focus)
  • Enterprise Risk Management objectives and imperatives(Strategy Focus)
  • Technology strategies in Enterprise Risk Management (Technology Focus)
  • Key enterprise risk management investment areas (Databook)
  • IT spending opportunities in retail banking and financial markets (Databook)
• Table of Contents
• Table of figures
• Table of tables
• The Evolution of Enterprise Risk Management (Market Focus)
  • Summary
• Analysis
  • Introduction
  • Credit risk failures can precipitate liquidity risk, so model assumptions need to be dynamic
    • Sub-prime crisis background
    • Credit risk challenges: leverage and modeling
    • Credit risk challenges: ratings agencies
    • Credit risk challenges: aggregation and integration
    • Credit risk challenges: knock-on effects
    • Implications for credit risk assessment and pricing
    • Changes to ratings agency policy and practice
    • Modeling
  • Over-reliance on modeling and silo structures prevented the successful aggregation of portfolio risk profiles.
    • Modeling shortfalls
    • Liquidity risk
  • While credit and market risk have long driven investment, operational risk is still evolving
    • ORM process
    • Communication is key.
  • The growing convergence between IT and risk is being driven by regulatory change
    • Compliance as opportunity.
    • MiFID and RegNMS update
  • Conclusion
• Enterprise Risk Management objectives and imperatives(Strategy Focus)
  • Summary
• Analysis
  • Introduction
  • Information risk management is the foundation of successful operational risk frameworks.
    • Fraud/AML detection and prevention an important entry point to ORM
  • Risk based product pricing must reflect all risks to ensure the most efficient use of capital.
    • Risk based asset pricing.
    • Efficient cost of capital: economic capital modeling
    • Performance management
  • Operational risk management (ORM) is maturing from historically tactical solutions
    • Considerations in establishing an ORM framework
    • Operational risk loss databases.
  • Conclusion
• Bank IT strategies in Enterprise Risk Management (Technology Focus)
  • Summary
• Analysis
  • Introduction
  • Successful solutions will be those able to deliver the right metrics to the right people in the right time.
    • Automation opportunities continue to be found in credit risk
    • Automation and its limited role in operational risk to date
    • Flexibility is the key feature of operational risk solutions
    • Industrializing computing scale by grid computing
  • In operational risk, outsourcing opportunities at this point are limited.
    • Outsourcing of regulatory compliance can bring benefits but strict governance is required
    • External loss databases
    • Vendor opportunity exists in flexible, customizable solutions
  • Need for economic capital efficiency is driving development in calculation engines and loss data utilization.
    • Economic capital will be at the heart of overall risk management strategy in financial services
    • Operational risk capital calculation methodologies are being refined
    • Process review key to ongoing refinement
    • Vendor opportunities
  • Conclusion
• Key enterprise risk management investment areas (Databook)
  • Introduction
  • Risk spending is expected to remain largely unaffected due to operational and credit risk drivers.
  • Operational risk will continue to grow at a faster pace in the search for performance based efficiencies
• IT spending opportunities in retail banking and financial markets (Databook)
  • Introduction
  • Credit risk spending will lift in 2009 as further integration within enterprise risk becomes possible.
  • Firms will seek to leverage prior investment internally in the drive to find efficiencies.
• APPENDIX
  • Definitions
  • Extended methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Risk management technology expenditure by region
    • Table 2: Risk management technology expenditure by risk type
    • Table 3: Risk management technology expenditure by sector
    • Table 4: Risk management technology expenditure by source
  • List of Figures
    • Figure 1: Enterprise risk management map
    • Figure 2: The levels of ORM
    • Figure 3: Investment drivers
    • Figure 4: Barriers to integration
    • Figure 5: Types of capital
    • Figure 6: Risk based performance measurement
    • Figure 7: Meeting Basel II AMA requirements
    • Figure 8: Scenario analysis a powerful tool for ERM implementation
    • Figure 9: Reporting and compliance is driving investment
    • Figure 10: Encouragingly upgrading of risk frameworks is already underway
    • Figure 11: Complexity of data types means progress in operational risk will be evolutionary
    • Figure 12: The many impacts of economic capital
    • Figure 13: Risk management technology expenditure by region
    • Figure 14: Risk management technology expenditure by risk type
    • Figure 15: Risk management technology expenditure by sector
    • Figure 16: Risk management expenditure by source