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Wir werden zum Jahresende auf eine Gesamtzahl von 73 Mitgliedern gewachsen sein. Davon werden 29 Wissenschaftlicher und 44 Praktiker sein. Auf die weitere Zusammenarbeit im Beirat freuen wir uns. Die Herausforderungen werden sicherlich nicht geringer werden. Juni fand die Forschungskonferenz auf Schloss Montabaur statt. Details zum Forschungspreis finden Sie im Beitrag Premiere: Nach der Forschungskonferenz traf sich der Beirat zu seiner 2.

Parallel hierzu tagten die Forschungspreis-Kommission und der Vorstand. Die beiden September-Sitzungen widmeten sich zwei Schwerpunktthemen. Am Nachmittag war das Thema FinTech: Konkurrent, Katalysatoren der Finanzbranche? Wir nahmen an drei Vorstandssitzungen teil. In der letzten Sitzung am 5. Bitte melden Sie sich. Die Forschungskonferenz wird im gleichen Format wie stattfinden. Da der Forschungspreis nur alle zwei Jahre vergeben wird, werden keine Bewerber um diesen Preis vortragen.

Josef Scherer Wirtschaftsrechtskanzlei Prof. Daher sind die Anforderungen an das Risikocontrolling, bei dem eine Vielzahl dieser Aufgaben angesiedelt ist, weiterhin sehr hoch. Denn in der praktischen Umsetzung werfen die vielschichtigen gesetzlichen Vorgaben immer neue Fragen auf. Wie werden einzelne Aspekte priorisiert? Er ist zudem in seinem Aufbau einmalig in Deutschland. In diesem Gremium erfolgt zudem ein Austausch auch abseits klassischer Regulierungsfragen.

Daher ist der Aufbau der Sitzungen straff getaktet. Wichtige Themen werden aufgerufen und andiskutiert. Dieser Dialog sowie Zugang zu erforderlichen Daten oder die Entwicklung gemeinsamer Thesen, Methoden oder Theorien sind entscheidende Faktoren, um Anregungen aus der aktuellen Forschung mit den realen Anforderungen des Risikomanagements zu verbinden. Der Compliance Risk Round Table wurde am April ins Leben gerufen und tagte bis zum Jahresende viermal. Ziel des Round Tables ist es: Am Round Table beteiligt sind Vertreter der Compliance-Funktion deutscher Finanzinstitute sowie Unternehmensberater und Wissen- schaftler, die in diesem Bereich arbeiten.

Einordnung von Conduct Risk: Senior Management Regime in UK p 3. Messung von Compliance-Risiken Die Messung und ggf. Mit diesem Ansatz geht die Aufsicht einen Schritt weiter als die US-amerikanische Aufsicht, die weiterhin reine Parameterstress vorsieht. Conduct Risk stellt hierbei keine neue sondern vielmehr einen neuen Schnitt auf bestehende Risikoarten dar. Diese Aussage steht interessanterweise in klarem Gegensatz zum klassischen Motto. September und am 5. Es war und ist dem Vorstandsvorsitzenden, Herrn Wolfgang Hartmann, ein besonderes Anliegen, mit den Mitglieder alles erfahrene RisikomanagementExperten enger zusammen zu arbeiten.

So kam es auf Einladung von Wolfgang Hartmann am Februar in Kelkheim Taunus zum 1. Zweck des Gremiums ist es insbesondere, allgemeine und aktuelle Risikomanagement- und Compliance-Themen zu diskutieren und zu vertiefen sowie gemeinsame Positionen zu national sowie international relevanten Problem- und Fragestellungen zu diskutieren und zu erarbeiten.

Die Mitglieder folgten dabei einstimmig dem Vorschlag des Vorstandsvorsitzenden, dem es dabei auch wichtig war, je einen Vertreter aus der akademischen Seite und der Praxis zu finden. Sitzungen Die Mitglieder haben am Das Forum bietet seinen Mitgliedern einen klaren Mehrwert. Komplettiert wird das Lehrangebot durch den Einbezug aktueller Forschungsarbeiten der am Studiengang beteiligten Wissenschaftler, die mit ihren Forschungsergebnissen zur wirtschafts- wie finanzpolitischen Weichenstellung beitragen.

Die Autoren vergleichen und untersuchen empirisch die entgegengesetzten Standpunkte mit Hilfe folgender zentralen Forschungsfragen: Bankkredite spielen eine bedeutende Rolle bei der Finanzierung von Investitionen in diesem besonderem Segment der unternehmerischen Landschaft. Einerseits zeigte sich eine sogenannte -Konvergenz: Ein Unternehmen, welches einen niedrigeren Verschuldungsgrad hat, akkumuliert indessen mit steigender Wachstumsrate mehr Schulden.

Der Masterstudiengang vereint alle wesentlichen Elemente einer modernen Weiterbildung: Der Aufbau des Curriculums ist in Abb. Modularer Aufbau und berufskompatibles Programmformat sichern nachhaltigen Lernerfolg Das besondere Format des Weiterbildungsstudiengangs schafft ausreichend Raum, den Anforderungen von Beruf und Studium gerecht zu werden.

Der Studiengang kann innerhalb von 22 Monaten abgeschlossen werden. Am Ende des Programms steht die Masterarbeit 14 Wochen. Deshalb hat die Frankfurt School zusammen mit FIRM entschieden, diesen Spezialmaster nicht mehr anzubieten, sondern sich bei der akademischen Ausbildung auf eine weitere Zielgruppe der weniger oder gar nicht berufserfahrenen Studierenden zu fokussieren. Die Angebote im Einzelnen: Hierbei ist es wichtig, die richtige Mischung aus allgemeinen betriebswirtschaftlichen Inhalten und Risikothemen zu schaffen.

Das Studium dauert zwei Jahre und wird in Englisch unterrichtet. Ebenso war die bisher dokumentierte Reputation in international angesehenen Zeitschriften ein wichtiges Kriterium. Es wird nicht wie bisher als Abweichung verschiedener Modellpreise gemessen, sondern als Verteilung der residualen Gewinne und Verluste nach Hedging mit unterschiedlichen Modellen.

Der Ansatz ist nach Ansicht der Jury dazu geeignet, sich zu einem Marktstandard zu entwickeln, und zwar in der Wissenschaft und im Risikomanagement der Marktteilnehmer. Hieraus ergeben sich wesentliche Folgefragen: Was ist der Zeitwert einer illiquiden Anleihe? Wie bilden wir dabei normale und adverse Marktphasen ab? Die Veranstaltung endete nach rund zwei Stunden. Weitere Veranstaltungen dieses Formats sind bereits in Planung.

Autoren Sebastian Rick Fachbereich 3: Das war nicht immer so in der bewegten Geschichte des Westerwalds. So auch das Schloss Montabaur. Der Blick aufs Ganze ist entscheidend. Im Wesentlichen wird durch Hedging das Marktrisiko der Position eliminiert. Ganzheitliches Denken bedeutet auch mit beiden Gehirn- In der Zwischenzeit wird immer besser verstanden, welche neuronale Basis risikobehaftete und auch spezifisch finanzielle Entscheidungen haben.

Wie werden Risiken und Unsicherheiten in Bewertungsprozesse integriert? Ein Downgrading erst recht. Dies erlaubt eine wertschonende Behandlung von Problemportfolios. Ein Hauptfokus der Arbeit liegt auf der Messung von Modellrisiken. Denn Risiko hat immer zwei Seiten: Die Chancen- und die Gefahrenseite. Auch das Thema Niedrigzins beziehungsweise Negativzins scheint in Europa zu einem Dauerthema zu werden. Dabei sind die posi- tiven gesamtwirtschaftlichen Effekte negativer Zinsen bisher nur schwer bestimmbar: Gleichzeitig zeichnen sich die langfristigen gesamtwirtschaftlichen und politischen Kosten immer deutlicher ab, ganz gravierend etwa mit Blick auf die private und betriebliche Altersversorgung.

Es sollten die Ergebnisse von Auswirkungsstudien abgewartet und bis sie vorliegen, eine Regulierungspause in Betracht gezogen werden.. Josef Scherer, Wirtschaftsrechtskanzlei Prof. Mark Wahrenburg und Prof. Beide sind Partner der ersten Stunde. Es gibt weiterhin Handlungsbedarf im Risikomanagement der Banken. Juni der wichtigste Schritt hin zur Etablierung des Risikomanagement-Instituts gelang. Frankfurt hat mittlerweile eine einzigartige Expertise auf den Feldern Risikomanagement und Regulierung aufgebaut. Wolfgang Hartmann, Frank Romeike Redaktion: Uta Rometsch, Stuttgart Redaktionsschluss: Frankfurt am Main, April Happy Birthday Data Science boosting Compliance: Casino or good early warning indicator?

In the latest edition, we once again report on our work at the Frankfurt Institute for Risk Management and Regulation. We have retained the familiar split into an internal and a professional section.

How Does China Manipulate Its Currency?

In this edition you will find a wide range of expert articles from the world of risk management and regulation. We would like to thank readers of the printed edition and the electronic version for their positive feedback on the visual modernisation of the Yearbook. Following the principle of always learn something new, but don t forget what works, we have retained the same layout.

The content of the Yearbook reflects the colourful variety and numerous issues in the world of risk management and regulation. Banks have made dramatic changes to risk management in the past decade and the pace of change shows no signs of slowing. The actions recommended here can equip bank risk functions with the capabilities they need to cope with new demands and help banks to excel among their competitors. Gerold Grasshoff, Thomas Pfuhler, Norbert Gittfried and Carsten Wiegand all Boston Consulting Group use their article Stable course despite increasing regulation to highlight the fact that regulatory changes will have a significant impact on current and future strategic and operational planning in banks.

Thus, it remains essential to carefully monitor the related developments and respond to them appropriately. Rising costs will increase the pressure on all banks to implement effective and efficient processes. According to the authors, the banks with the best performance will utilise this opportunity to implement technical innovations and optimise their management of financial resources. Disruptive innovations begin at the lower end of existing markets or create new markets. However, not everything is disruptive even if the tech disciples in Silicon Valley are convinced it is.

Disruptive innovations teach us that existing business models need to be systematically developed on an ongoing basis. It is essential for companies to get to grips with potential future scenarios, so that they can learn from the future and actively shape it. The greater emphasis on risk culture means that the regulatory debate is currently seeing an expansion of its perspective. For authors Frank Westhoff, Rafael Bauschke and Dennis Kautz all DZ Bank AG , creating an effective risk culture is not primarily a matter of processes and rules, but a question of setting an example, making it above all a management task.

In their article Risk culture as a determining factor in business success, they show that the new emphasis on qualitative supervisory aspects supplements the continuous development of quantitative and structural regulations and underlines the relevance of the behavioural level for the stability of the financial sector. In the medium term, this broader regulatory perspective could present opportunities to eliminate some regulatory requirements.

KG have written an article Solvency II turns one: Happy Birthday, in which they discuss the fact that on the first birthday of Solvency II, the implementation process among insurance companies has not yet been completed. Adjustments are being made to risk assessment for investment decisions, for example. Most institutions are using outsourcing options to enable them to carry out resource-saving risk assessments. The authors look at the forms of this outsourcing from a practical, supervisory and technical security perspective.

Since ancient times, risks have been seen as unearthly, incalculable and largely uncontrollable phenomena. According to Thomas Kaiser Goethe University, Frankfurt am Main in his article Behavioural risk management Influences on risk management of non-financial risks, in recent decades partially fired by excessive faith in models a diametrically opposed view of the controllability of risks has become established. He highlights the fact that psychological and physiological aspects of human behaviour play a critical role when dealing with risk. These issues referred to by the umbrella term behavioural risk management must be given appropriate consideration in the risk framework, but with conscious acceptance of the limits of this consideration.

Risk managers in the financial industry and beyond are currently dealing with issues such as reputation risks, operational risks, compliance risks, conduct risk, internal control systems and the three lines of defence model. The article Non-financial risks: Definition and control at the government financial agency by authors Jens Clausen and Carsten Lehr both Bundesrepublik Deutschland Finanzagentur GmbH uses the example of the financial agency to address the question of how these issues can be logically defined and how they can be combined in terms of content and organisationally.

A closer examination reveals that the risks listed here occur at different levels, and potentially have overlaps or even causal relationships. Capital always has been and remains a scarce resource in banking. The well-known objectives of management allocation of economic and regulatory capital, compliance with regulatory requirements, earning of an appropriate return with a sustainable business model require ongoing developments in the banking infrastructure.

Above all, capital planning and allocation and risk management must become more integrated and more flexible in terms of business policy, methodology and data sources and access. The results of the econometric analysis documented here can thus be considered as an indication that the stock market in Asia s largest economy is not especially closely linked to economic fundamentals.

Under German law, Corporate Governance is intended to ensure that a company s management bodies act for the benefit of the corporation, that is to say in the company s interest 93 German Companies Act AktG. Different interest groups stakeholders cooperate in a company in order to effectively pursue their respective interests. In a narrow sense, these interest groups include shareholders, employees and creditors, and in a wider sense also customers, suppliers, the environment and the tax authorities taxpayers.

The company s management can make a decision in the company s interest without any difficulty if it serves the interests of all stakeholders, or at least does not disadvantage any group. However, there are frequently conflicts of interest. For management, who have to act in the company s interest, this raises the question of which criteria they should use to make a decision in this kind of case. In November , the ECB took over supervision of the most important banks in Europe and, at least indirectly, also supervision of the entire banking system in the member states of the Single Supervisory Mechanism or SSM.

The figures calculated by the institutions for internal purposes in line with the internal risk taxonomy have to be entered in the spreadsheet. An effective solution for value at risk based risk descriptions is to use the marginal components of VaR. Can stock market forecasters really predict price movements? This was the question asked by Alfred Cowles in his article, and it has occupied the minds of investors and academics for more than 80 years, with a split into two main camps.

On one side were those who believed that share prices are predictable and were looking for strategies to earn easy money. By contrast, representatives from the other camp were convinced that prices move randomly and attempted to underpin their thesis with theoretical arguments and empirical data. In their article The development of model risk management, Konstantina Armata and Stephan Wilken both Deutsche Bank AG argue that, in the mid-sixties, there was overwhelming empirical and theoretical evidence that share prices really did change randomly.

This was followed by years of intensive model development by financial institutions. A relatively new and constantly changing risk discipline was born model risk management. The article looks at the development of this new risk discipline, explains its key elements and provides a brief outlook. Models play a particularly important role in finance and risk management, and the institutional control based on them.

However, the use of models is also linked to uncertainties and risks for the institutions. For example, according to authors Stephan Kloock Helaba and Andreas Peter Fintegral Deutschland AG in their article Solutions for efficient design of the independent model validation function, the underlying assumptions of a model may be inappropriate for the specific situation. There may also be errors in model development and implementation, when using the models, or in interpretation of the results.

This can result in incorrect allocation of capital, poor management decisions, and damage to reputation. Thus, it is in banks own interests to manage model risks with the same diligence as the classic risk types. The technical and methodological challenges associated with the new requirements are considerable and capital requirements are set to increase. In the article Five challenges in the regulatory offensive on interest rate risk in the banking book, Lars Dohse and Andreas Keese both d-fine GmbH set out the key challenges resulting from the stricter regulation of interest rate risk in the banking book.

For some time, the structured financial products for small investors certificates market segment has been the focus of investor protection and regulation. In parallel to legislatory measures, the industry itself has played an active role with the introduction of voluntary self-regulation.

Publications

In the past, speculative exaggerations, known as bubbles, have often been the harbinger of abrupt price falls followed by crises. But what causes them? And what determines whether temporary over or under valuation is gradually neutralised or a bursting speculation bubble becomes the trigger for a destructive, chaotic chain reaction of cascading losses?

In contrast to share markets with central clearing, transparent bid and ask prices in decentralised bond markets are not available, making it very difficult to measure the transaction costs for bonds. The article by Philipp Schuster and Marliese Uhrig-Homburg both Karlsruhe Institute for Technology entitled Measurement of transaction costs in bond markets analyses and compares different approaches to measuring liquidity in bond markets and provides recommendations for the liquidity measurements that are most suitable in particular situations.

Is private property lending a product once viewed as low-risk increasingly turning into a genuine risk for banks? Current discussions in the media, but also recent legislation and regulation, certainly could give rise to this impression, according to Daniel Vogler ING-DiBa AG in his article Private property lending in Germany an increasingly risky business for banks?.

The aim of the article is to provide an overall assessment of the current situation. The development of a resolution plan is the responsibility of the relevant resolution authority, as established by the Single Resolution Mechanism. Nonetheless, considerable efforts on the part of banks are required. This makes it necessary for banks to engage in corresponding projects.

The aim of every banking institution is to reduce its proportion of non-performing loans and keep it as low as possible. To do this, they need to come up with and implement a balanced and sound lending policy in order to keep control of risks and growth. In addition, the capital utilised in the lending management process must be evaluated and monitored in order to reduce capital costs. Implementing an early warning system, monitoring NPLs using defined key performance indicators and conducting effective monitoring are the key to success when it comes to managing non-performing loans.

Selling debt to an investor is just one of the options available. How machine learning is increasing efficiency and effectiveness in compliance that banks want to reduce violations of regulations to zero in order to prevent the associate damage to their image and financial losses. However, implementing this objective is far from easy. Compliance functions have to deal with an ever-increasing number of new regulations and, at the same time, with the increasingly sophisticated methods of those who want to circumvent the regulations.

They also have to work within an extremely tight budget. Using new data management methods, banks can identify compliance violations more effectively and simultaneously reduce the amount of manual work required. For many years the importance and impact of risk and controls frameworks within the financial world have been underestimated. Risk and control played only a minor role during this time.

This, however, changed drastically when regulators unleashed waves of new regulations in the years following the financial crisis. Maximizing value and competitive advantage that especially new tools, such as advanced analytics, robotics and smart compliance software, offer. Finally, to gain maximum value out of a risk and control framework, it needs to be customized and integrated within the entire business model and alongside a continuous risk management process. Huge potential for effectiveness, efficiency and value contributions in governance, calls for integration of different standards to create a Meta Combined IMS Universal Standard for implementation, auditing and certification.

There are various reasons why investors may want to take on no or only low risk, but insufficient or badly understood communication of risks should not be among them. One way of giving investors who have previously had little or no experience of the stock market a better feeling for and understanding of the risk of investing in shares is provided by a new form of risk communication learning by experience with the assistance of simulated returns. One such risk tool, which has been developed at the University of Mannheim and tested in various studies, is presented in the article Communicating the risk of financial investments using simulations by Martin Weber and Christine Laudenbach both University of Mannheim.

After the European Parliament finally agreed on adoption of IFRS 9 in October and the new standard was published in the official journal in November, the new accounting law will come into force in January An important element of the new regulations relates to recognition of hedge accounting from financial instruments in the balance sheet.

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The IAS 39 regulations that are currently in place are complex and rule-based; they regularly contribute to a decoupling between recognition in the balance sheet and the company s actual risk position. Effects on banks hedge accounting, authors Matthias Backes and Jannis Bischof both University of Mannheim argue that the forthcoming new regulations for dynamic macro hedging, particularly relevant for banks, should not be limited to interest rate risks.

In order to be able to interpret findings from neuro-economics for other specialist disciplines or for use in financial decisions, it is first essential to understand how risk behaviour in financial issues is measured using neuroscientific methods. Banks expect the implementation of IFRS 9 to result in increasing credit risk mitigation and increasing result volatility. In addition to disclosure of the ECL model when applying IFRS 9 from , the reporting arrangements for the transition period are coming into focus.

We look forward to hearing your feedback and to your active participation in the Institute for Risk Management and Regulation. This article presents six initiatives to help them stay ahead as the risk function in banks will have a dramatically different role by To get there, needed changes will take several years. Risk management in banking has been transformed over the past decade, largely in response to regulations that emerged from the global financial crisis. But important trends are afoot that suggest risk management will experience even more sweeping change in the next decade.

The change expected in bank risk function s operating model illustrates the magnitude of what lies ahead. Today, about 50 percent of the function s staff are dedicated to risk-related operational processes such as credit administration, while 15 percent work in analytics. McKinsey research suggests that by , these numbers will be closer to 25 and 40 percent, respectively. No one can draw a blueprint of what a bank s risk function will look like in or predict all forthcoming disruptions, be they technological advances, macroeconomic shocks, or banking scandals.

But the fundamental trends do permit a broad sketch of what will be required of the bank risk function of the future. The trends furthermore suggest that banks can take some initiatives now to deliver short-term results while preparing for the coming changes. By acting now, banks will help risk functions avoid being overwhelmed by the new demands. Six trends are shaping the role of the risk function of the future.

Regulation will continue to broaden and deepen While the magnitude and speed of regulatory change is unlikely to be uniform across countries, the future undoubtedly holds more regulation both financial and nonfinancial even for banks operating in emerging economies. Much of the impetus comes from public sentiment, which is ever less tolerant of bank failures and the use of public money to salvage them.

Most parts of the prudential regulatory framework devised to prevent a repetition of the financial crisis are now in place in financial markets in developed economies. Governments are exerting regulatory pressure in other forms, too. Increasingly, banks are being required to assist in crackdowns on illegal and unethical financial transactions by detecting signs of money laundering, sanctions busting, fraud, financing of terrorism, and to facilitate the collection of taxes.

Governments are also demanding that banks comply with national regulatory standards wherever they operate in the world. Banks operating abroad must already adhere to US regulations concerning bribery, fraud, and tax collection, for example. Regulations relating to employment practices, environmental standards, and financial inclusion could eventually be applied in the same way. Banks behavior toward their customers is also under scrutiny. The terms and conditions of contracts, marketing, branding, and sales practices are regulated in many jurisdictions, and rules to protect consumers are likely to tighten further.

Banks will probably be closely examined for information asymmetries, barriers to switching banks, inappropriate or incomprehensible advice, and nontransparent or unnecessarily complex product features and pricing structures. The bundling and cross-subsidizing of products could also become problematic.

In certain cases, banks might even be obliged to inform their customers of more suitable products with better terms than the ones they have. This tightening regulatory environment makes the traditional model unviable to manage regulatory risks; the risk function will need to build even more robust regulatory and stakeholder-management capabilities. Risk functions must not only ensure compliance with existing rules but also review the entire sales-and-service approach through a broad, principle-based lens.

In addition, the risk function will play a vital role in collaborating with other bank functions to reduce risk for example, by working more closely with the business to integrate and automate the correct behaviors and to eliminate human interventions. The risk function s tasks will be to ensure that compliance considerations are always top of mind and not addressed perfunctorily by businesses after they have formulated their strategies or designed a new product. Customer expectations are rising in line with changing technology Technological innovation has ushered in a new set of competitors, so-called fintechs.

They do not want to be banks, but they do want to take over the direct customer relationship and tap into the most lucrative part of the value chain origination and sales. These activities currently account for almost 60 percent of banks profits. They also earned banks an attractive 22 percent return on equity, much higher than the gains they received from the provision of the balance sheet, which generated a 6 percent return on equity.

The seamless and simple apps and online services that fintechs offer are beginning to break banks heavy gravitational pull on customers. Most fintechs start by asking customers to transfer a single piece of their financial business, but many then steadily extend their services. If banks want to keep their customers, they will have to up their game, as customers will expect intuitive, seamless experiences, access to services at any time on any device, personalized propositions, and instant decisions.

Banks responses to higher customer expectations will be automated: For banks to deliver at this level, they will have to be redesigned from the perspective of customer experience and then digitized at scale. Kabbage does not require loan applicants to fill out lengthy documents to establish creditworthiness. Instead, it draws upon a wide range of customer information from data sources such as PayPal transactions, Amazon and ebay trade information, and United Parcel Service shipment volumes.

While it remains to be seen how such fintechs perform in the longer term, banks are learning from them. Some are designing account-opening processes, for example, where most of the requested data can be drawn from public sources. The risk function will have to work closely with each business to meet these kinds of customer expectations while containing risks to the bank. Technology also enables banks and their competitors to offer increasingly customized services.

It may be possible eventually to create the segment of one, tailoring prices and products to each individual. This degree of customization is expensive for banks to achieve because of the complexity of supporting processes. Regulatory constraints might well be imposed in this area, however, to protect consumers from inappropriate pricing and approval decisions. To find ways to provide these highly customized solutions while managing the risk will be the task of the risk function, working jointly with operations and other functions.

Risk management will need to become a seamless, instant component of every key customer journey. Technology and advanced analytics are evolving Technological innovations continuously emerge, enabling new risk management techniques and helping the risk function make better risk decisions at lower costs. Big data, machine learning, and crowdsourcing illustrate the potential impact: Faster, cheaper computing power enables risk functions to use reams of structured and unstructured customer information to help them make better credit risk decisions, monitor portfolios for early evidence of problems, detect financial crime, and predict operational losses.

An important question for banks is whether they can obtain regulatory and customer approval for models that use social data and online activity. This method improves the accuracy of risk models by identifying complex, nonlinear patterns in large data sets.


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Every bit of new information is used to increase the predictive power of the model. Some banks that have used models enhanced in this way have achieved promising early results. Since they cannot be traditionally validated, however, self-learning models may not be approved for regulatory capital purposes. Nevertheless, their accuracy is compelling, and financial institutions will likely employ machine learning at least for decision making. The Internet enables the crowdsourcing of ideas, which many incumbent companies use to improve their effectiveness. Many of these technological innovations can reduce risk costs and fines, and they will confer a competitive advantage on banks that apply them early and boldly.

However, they may also expose institutions to unexpected risks, posing more challenges for the risk function. Data privacy and protection are also important concerns that must be addressed with due rigor. New risks are emerging Inevitably, the risk function will have to detect and manage new and unfamiliar risks over the next decade. Model risk, cybersecurity risk, and contagion risk are examples that have emerged: Banks increasing dependence on business modeling requires that risk managers understand and manage model risk better. Although losses often go unreported, the consequences of errors in the model can be extreme.

Risk mitigation will entail rigorous guidelines and processes for developing and validating models, as well as the constant monitoring and improvement of them. Most banks have already made protection against cyberattacks a top strategic priority, but cybersecurity will only increase in importance and require ever greater resources. As banks store an increasing amount of data about their customers, the exposure to cyberattacks is likely to further grow.

Banks are more vulnerable to financial contagion in a global market. Negative market developments can quickly spread to other parts of a bank, other markets, and other involved parties. Banks need to measure and track their exposure to contagion and its potential impact on performance. Measures to reduce a bank s total risk can reduce its capital requirements, as contagion risk is one of the main drivers for classification as a global systemically important bank G-SIB and for G-SIB capital surcharges. To prepare for new risks, the risk-management function will need to build a perspective for senior management on risks that might emerge, the bank s appetite for assuming them, and how to detect and mitigate them.

And it will need the flexibility to adapt its operating models to fulfill any new risk activities. The risk function can help banks remove biases Behavioral economics has made great strides in understanding how people make decisions guided by conscious or unconscious biases. It has shown, for example, that people are typically overconfident in a few well-known experiments, for example, enormous majorities of respondents rated their driving skills as above average. Anchoring is another bias, by which people tend to rely heavily on the first piece of information they analyze when forming opinions or making decisions.

Biases are highly relevant for bank risk-management functions, as banks are in the business of taking risk, and every risk decision is subject to biases. A credit officer might write on a credit application, for example, While the management team only recently joined the company, it is very experienced. The statement may simply be true or it may be an attempt to neutralize potentially negative evidence. Leading academics and practitioners have developed techniques for overcoming such biases, and various industries are beginning to apply them.

For example, some energy utilities are trying to eliminate bias by redesigning the processes they follow in making major investment decisions. Banks are also likely to deploy techniques to remove bias from decision making, including analytical measures that provide decision makers with more fact-based inputs, debate techniques that help remove biases from conversations and decisions, and organizational measures that embed new ways of decision making.

The risk function should take the lead in de-biasing banks. It could even become a center of excellence that rolls out de-biasing processes and tools to other parts of the organization. The pressure for cost savings will continue The banking system has suffered from slow but constant margin decline in most geographies and product categories. The downward pressure on margins will likely continue, not least because of the emergence of low-cost business models used by digital attackers. As a result, the operating costs of banks will probably need to be substantially lower than they are today.

After exhausting traditional cost-cutting approaches such as zero-based budgeting and outsourcing, banks will find that the most effective remaining measures left are simplification, standardization, and digitization. The risk function must play its part in reducing costs in these ways, which will also afford opportunities to reduce risks.

A strong automated control framework, for example, can reduce human intervention, tying risks to specific process break points. As the pressure to reduce costs will persist, the risk function will need to find further cost-savings opportunities in digitization and automation while delivering much more for much less. Preparing for change The six trends suggest a vision for a high-performing risk function come It will need to be a core part of banks strategic planning, collaborate closely with businesses, and act as a center of excellence in analytics and de-biased decision making.

Its ability to manage multiple risk types while complying with existing regulation and preparing for new rules will make it more valuable still, while its role in fulfilling customer expectations will probably render it a key contributor to the bottom line. For most banks, their risk function is some way off from being able to play that role. The optimal function would have the following attributes and capabilities: How can they begin? They cannot prepare for every eventuality, but initiatives can be implemented that will bring short-term business gains while helping build the essential components of a high-performing risk function over the next decade.

Here are some examples of such initiatives that can be launched immediately: Simplification, standardization, and automation are key to reducing non-financial risk and operating expenses. To that end, the risk function can help speed the digitization of core risk processes, such as credit applications and underwriting, by approaching businesses with suggestions rather than waiting for the businesses to come to them.

Increased efficiency, a superior customer experience, and improved sales will likely be additional benefits. In the same vein, risk functions should experiment more with analytics, and particularly machine learning, to enhance the accuracy of their predictive models. Risk functions can be expected to use these models for a number of purposes, including financialcrime detection, credit underwriting, early-warning systems, and collections in the retail and small-and-medium-size-enterprise segments.

Ever-broader regulation and the need to adjust to market developments require rapid, fact-based decision making, which means better risk reporting. Replacing paper-based reports with interactive tablet solutions that offer information in real time and enable users to do root-cause analyses would enable banks to make better decisions faster and to identify potential risks more quickly as well.


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  7. Given regulatory constraints, balance-sheet composition is arguably more important than ever in supporting profitability. The risk function can help optimize the asset and liability composition of the balance sheet by working with finance and strategy functions to consider various economic scenarios, regulation, and strategic choices.

    How prepared would the bank be, for example, if the loan portfolio were contracted or expanded? Such analyses, optimized with analytical tools, can help banks find ways to improve returns on equity, while still fulfilling all regulatory requirements. High-performing risk functions commonly depend on a high-performing IT and data infrastructure a central data lake with harmonized definitions and clear data governance, for example.

    Building the right mix of talent is equally important. Data scientists with advanced mathematical and statistical knowledge are needed to collaborate across the bank in the conversion of data insights into business actions. Risk managers will become trusted counselors to business areas, while traditional operational areas will require fewer staff. Attracting talented employees will itself be a challenge, as potential candidates would tend to prefer technology firms unless banks strengthen their value propositions. The detection, assessment, and mitigation of risk must become part of the daily job of all bank employees and not only those in risk functions.

    With automation and more sophisticated analytical and technical capabilities, human intervention is needed to ensure appropriate and ethical application. The globally averaged performance of banks, measured by economic profit, inched higher in for the fifth year in a row. However, beneath the industry s steady if slow global improvement, bank performance diverged widely by region. At the same time, the gap between high-performing banks and those performing under par continued to widen. As we forecast last year, the seas of regulatory change have continued to surge worldwide, with strong impact on banks current strategic and operational planning, and implications for the future.

    Monitoring and addressing regulation, therefore, need to remain a priority. Rising costs will pressure all banks toward increasingly effective and efficient processes. Top-performing banks will use the opportunity to incorporate technical innovation and optimize steering of financial resources. Regional Diversities in Economic Profit Examining bank performance in by region reveals significant differences in the drivers of economic profit and approaches for achieving it.

    North American banks continued on a growth path. Their balance sheets grew and they reduced both operating and risk costs. Income components, however, contributed less to economic profit. European banks balance sheets continued to contract, and their negative economic profits remained at the prior year level. While income rose, so did their operating costs, while slight reductions in risk costs weren t sufficient to regain positive economic profit. Moreover, the gap between top and low performers in Europe continued to widen, in contrast with North America where the range of economic profit was stable.

    Banks in other regions showed a similarly diverse but mostly positive picture. Asia-Pacific banks delivered stable, positive economic profit, while performance in the Middle East and Africa continued to rise steadily. South America, in contrast, experienced a sharp decline, mainly caused by increased risk costs. Among banks in the West, we observe a strengthening trend toward resource-based strategies to tackle the challenges of bolstering and building economic profit.

    The leading banks are focusing on tight and efficient management of resources and costs. Also, regulation is finally getting attention at all levels of strategic and operational planning. An Era of Constant Evolution The era of constantly evolving and increasing regulatory requirements persists. The number of individual regulatory changes that banks must track on a global scale has more than tripled since , to an average of daily regulatory revisions.

    We have identified three overarching themes in this evolution. The first is that regulation must be considered a permanent rise in sea level--not just a rising tide that will ebb, nor a cresting tsunami that will one day recede. Many high-level reform packages are now in place. The coming burden for banks will more and more arise in the form of guidance on technical implementation and findings of regulatory audits. Second, the brunt of regulatory requirements still results largely from the actions of single jurisdictions rather than from fully globally coordinated initiatives. This means that single legal entities remain the dominant focus level behind most new and changing requirements that banks must comply with.

    Third, the influence of regulation on strategic and operational planning remains high-- for example, regulation still consumes the largest share of bank project portfolios. Regulation thus needs to stay on the agenda. To assess the current status and most relevant topics of regulation, we organize the global regulatory spectrum into three clusters: This is the most developed area of reform, but even here details continue to evolve.

    Capital is still the name of the game, since pressure by both investors and peer groups is driving capital requirements. However, the Basel IV reform package is adding uncertainty as well as complexity. Uncertainty, because the introduction of RWA floors based on standardized approaches in its current form add relevant upward pressure on RWAs.

    The leverage ratio is the second most important indicator in the capital game. The management of these costs will continue to be a major task for banks, which must create a strong nonfinancial-risk framework around first-, secondand third-line functions to avoid past errors. The yard stick for the retrospective judgment on business practices in banks and decisions of individuals moves from was it lawful?

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    A specific challenge will be designing an effective compliance operating model and the key decision is whether to follow a rule-based or an integrity-based scope of the compliance function. In relative terms, resolution continues to remain the least developed, and most pressing, area of reform. There is still no uniform view of how to unwind banks and what preparatory structural measures might be needed. However, some potentially significant contributions to bank resolution are emerging from measures already implemented by banks. These include both quantitative and structural adjustments and changes.

    Quantitative measures include increasing liquid assets, ensuring sufficient bailin-able debt, and reducing balance-sheet size. Structural measures include implementation of non-operating holding structures at the group or intermediate level within a jurisdiction, the reduction of legal entity complexity, the separation of critical economic functions often home-market related, as well as the provision of critical services out of separate service entities. An open debate will be who will be permitted to invest in bail-in-able debt in the long run.

    Annual reports; press reports; BCG analysis. Values may not add up to totals shown due to rounding. Values for include penalties until 31 October However, there are two additional challenges to stay the course using a resource-based strategy. On the one hand, bank steering functions will need to become more cost-effective and also contribute to banks overall cost direction.

    Levers range from adjustments of the organizational setup and operating model to adapting the tremendous potential of new technologies. Fintech and RegTech startups are rapidly developing innovative capabilities and solutions relevant to several aspects of bank steering. Offerings range from more flexible IT infrastructures based on advanced analytics and big data, to improvements in process efficiency and automation. That said, banks mustn t forget that their risk and steering functions are ultimately responsible for optimizing the scarce financial resources of capital, liquidity and funding.

    We re talking about disruption the economics word of the year in Of course, wherever there are advocates, there are also critics. The FAZ chose disruption as its worst business word of the year Digital, more digital, disruptive The protagonists: In the shape of companies such as Uber, AirBnB, Netflix and ZipCars, competitors are emerging that are clearly changing and breaking the rules of entire industries, and moving them towards platform capitalism. In the current debate about the brave new digital world, people often refer to these companies as outstanding examples of disruptive innovations and business models.

    Anyone who doesn t keep up will soon be out of the picture. At least that s how the advocates see it, and what digital companies and associations are predicting. At times, the digital age resembles a gold rush, with billions in sales racked up overnight and huge increases in the value of a succession of start-up firms. Following the Silicon Valley ideology, they are all aiming to be the next unicorn the name given to a company with the potential to be worth a billion dollars.

    For financial service providers, disruptive innovations are often referred to as being like the sword of Damocles. With their disruptive potential, they are said to be on the verge of knocking established banks and insurers off their perch, according to the protagonists of the digital world. The prophecies of doom range from Uber-isation of the banking sector to the end of classic non-digital business models. But is this transformation in the competitive landscape towards a platform and a totally new kind of sharing economy really disruption?

    And what do decision-makers need to know about the issue? It s time to pause for a moment and take stock. Because not everything that says disruption on it actually has disruption inside you need to take a much closer look. Theory Destruction and reconstruction The macroeconomic theory of disruptive innovation can be partially traced back to the creative destruction thesis propounded by Schumpeter [see Schumpeter ].

    Here, innovation is the basis for economic progress and is a process in which old structures are overtaken by new forms of organisation. Talking of the word new: The economics magazine brand eins defines disruption in its literal sense and concludes that: It means the destruction of traditional business models and value chains. For the founding generation, the word is more than a macroeconomic term, it represents their attitude to life. Blogger and author Sascha Lobo sees disruption as a kind of magic word in this new environment. It means destroying markets in their current form. So that they can be rebuilt different, newer, cheaper, according to Lobo [see Lobo ].

    However, the fundamental aim of disruption is not deliberate destruction. Disruptive innovation in the media Source: The disruptive innovation model Source: Concept Profitable market segments inevitably lead to a dilemma In a business context, disruptive innovation can be traced back to a concept put forward by Clayton M. According to this argument, established companies are faced with a dilemma. On the one hand, these companies are constantly attempting to develop higher performance products and services for their customers.

    On the other hand, this absolutely correct behaviour means that they leave opportunities and customers open to alternative suppliers at the lower end of the performance scale: Customers in this segment do not no longer derive any benefit from the improvements offered and turn to lower cost alternatives. Sustaining innovation Continuous upwards development At the upper end of the customer segments, demanding customers are prepared to reward this progress.

    Accordingly, an established company with strong resources finds a very profitable and attractive customer segment, which they then focus on. Consequently, this customer group is provided with constantly higher performance solutions due to continuous innovation sustaining innovation and this keeps competition at a distance. At the same time, by focusing on these customers and due to evolutionary improvements the company manoeuvres itself into a niche at the upper end of the market.

    Disruptive innovation Solutions for less demanding customers By contrast, disruptive innovations always tend to emerge at the lower end of the performance scale. Here, you can initially find a small number of currently unattractive customers. Profit margins are correspondingly low and therefore not of interest to established or growth-oriented companies. New suppliers can take advantage of these opportunities as they present themselves by attacking established suppliers in their market by offering these less demanding customer groups innovative and, above all, alternative solutions.

    These new business models based on simpler and thus lower cost alternatives are good enough for these customers to perform their actual tasks. This is how the new competitors initially succeed in gaining entry to the market. By continuously optimising their alternative solutions, they consistently come up with higher performing innovations. As a result, what they offer increasingly becomes interesting to additional customer groups and established suppliers business models are undermined disrupted in the long term.

    This can be briefly illustrated using the example of off-grid energy supply: In developing countries, around 2. To improve this, in Africa and Asia off-grid i. This is always better for users than what they had before previously there was nothing at all. Established power generators have no response with their tried and tested solutions. The complex infrastructure for central and doubtless efficient production and transmission to the end user is not or no longer required here.

    Due to the disruption described, these established suppliers business model, tailored towards economic and technological efficiency, inevitably has no impact. It is simply overdeveloped for this context. Innovative business models enable new companies to target different and previously fallow markets markets of non-consumption or even to invent new markets. This gives customers who previously had no financial opportunities at all solutions that enable them to significantly improve their own situation.

    These markets that have not previously been supplied are often excluded from the market monitoring carried out by established suppliers. The low level of attention and lack of competition therefore make this segment even more attractive to new entrants. Challenge New approaches are not possible with existing structures Simple solutions allow a challenger easy access to the lower market segment. Continuous development of innovative and attractive solutions then leads to increasing market penetration by the challenger. The established company ultimately loses market share. It finds itself increasingly caught in a niche position, from which the company cannot free itself with its long-established corporate structure and trusted methods.

    The key questions that decision-makers have to ask themselves in this context: Can we really overcome our traditional way of working p who is the right customer for us and our long-term capabilities? Possible solutions Separating established and new If we follow Christensen s explanation, alternative products, solutions and business models in an established environment are perceived exclusively as alien elements.

    Therefore, these very different approaches are rejected by existing organisations for various reasons: It s not right for us, our capabilities, our aspirations and the way we do things here [ The existing organisation defends itself against the newcomer in the house. There are also some key elements that do not match: The cultures, the organisational forms, the types of interaction and the people involved are generally not compatible.

    Companies that face up to the challenge of disruptive innovation and want to become disruptors themselves must therefore set up a separate new business unit spin-off with its own business model and specific growth and earnings expectations or acquire one of the start-up companies involved and continue to keep the units separate from one another. Offer Customers do not buy a product, they buy a solution to their problem Disruptive innovations arise due to consistent focus on a customer problem and the task the customer has to perform. Therefore, detailed knowledge of the customer and their specific challenge job to be done is a key prerequisite for targeted innovation.

    Accordingly, it is important for the company to be familiar with the customer s task and model its business model to match. As a consequence, customers are segmented exclusively according to their requirements and offered specific solutions. Contradiction A concept is not a general theory or a forecasting method Among those who have criticised the disruptive innovation concept is the Harvard historian Jill Lepore [see Lepore ].

    She argues that the concept is based on a deep-seated fear of financial collapse and an apocalyptic fear of global destruction on the one hand. On the other hand, she criticises Christensen s arguments and the lack of empirical rigour: The economist Joshua Gans [see Gans ] also contradicts the deterministic claims of Christensen s concept. The future is always uncertain and the success of disruptive innovations can ultimately only be assessed with hindsight.

    Epilogue An aggressive business model alone is not disruption A comprehensive understanding is required to effectively utilise the disruptive innovation method see Info box They create an offer for customers that established suppliers ignore. By contrast, solutions for average customers require a certain level of quality. However, this can only be achieved over time. With their performance promise, they put themselves alongside the group of existing competitors.

    They are merely intermediaries who bring together supply and demand in an intelligent way. Instead of putting themselves alongside the established companies, start-ups should create something better and genuinely new.

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    New thinking and solving fundamental problems have always been the basis for progress, jobs and prosperity. For established suppliers, there are two fundamental risks: Firstly, there is the danger that alternative suppliers and the simple solutions they offer will not actually be perceived because market monitoring is restricted to familiar markets and competitors perception risk. Later, these alternatives are dismissed as low grade and insignificant, based on their current profitability, in an effort to confirm the company s own leading position arrogance risk.

    This will inevitably lead to the dilemma described here. There is no doubt that this applies to economics but of course it is also the case in politics with the solutions offered there. Therefore, established suppliers have to look in every direction for relevant information and pay attention to early warning indicators. Under no circumstances as they do all too frequently should they rest on their laurels. Ihr PDF ist nun fertig. Weitere Informationen Verstanden und fortfahren Einstellungen. Campus Studenten aller weiteren Programme Mitarbeiter Alumni.

    International Executive Week Shanghai - Executive Week Der Teilnehmerkreis ist auf 35 Personen limitiert. Auch der Wissensaustausch mit Management-Absolventen aus ganz Deutschland ist eine wertvolle Erfahrung. Die Shanghai- Week hat mich im Komplettpaket begeistert. Dominik Schardt Vertriebsdirektor Dekabank Frankfurt.