Risk Management & Capital Adequacy by Reto Gallati

By Reto Gallati

Under the recent Basle instructions, all monetary associations topic to neighborhood banking legislation will quickly be required to function lower than dramatically diversified threat publicity principles. Risk administration and Capital Adequacy provides info at the key danger methods lower than those new directions and is the 1st ebook to research if and the way they are often built-in. From conceptual frameworks to analyses of versions and methods, it offers a fantastic reference resource for the data that everybody in threat administration will quickly have to know.

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1994. tities, and employees focus on quality assurance and continuous improve­ ment throughout the organization. 4 Approach and Risk Maps Figures 1-9 and 1-10 present the approach and risk maps used in this book. 1 Definition There is no uniform accepted definition of systemic risk. This book uses the definition contained in a 1992 report of the Bank for International Set­ tlement (BIS):13 CHAPTER 1 24 F I G U R E 1-9 Risk Categorization Used as an Integrative Framework in This Book. Model Risk "Greeks" Equity Price Risk Equity Risk Product Risk Model Risk Interest Rate Risk Market Risk Factors Currency Risk Commodity Risk Regulatory Mechanisms Basis / Spread Risk Product Risk Prepayment Model Risk "Greeks" Fx Curve Risk Basis / Spread Risk Commodity Curve Risk Liquidity Risk Model Risk Capital Adequacy Model Risk Risk Disclosure Regulatory Constraints Current Exposure Counterparty Risk Potential Exposure Cumulation Risk Direct Credit Risk Credit Risk Exposure Rating Credit Equivalent Exposure Credit Risk Model Risk Diversification Risk Capital Adequacy Regulatory Mechanisms Model Risk Risk Disclosure Regulatory Constraints Product / Market Combination Sales Risks Distribution Order Capture & Confirmation Customer / Transaction Risks Marketing Risks Disclosures Controlling Business Control Internal Audit Operational Risk Legal & Compliance Support Service Risks Accounting Logistics HR IT / Technology Risk Disclosure Regulatory Mechanisms Regulatory Constraints Political Stability International / National Stability Risks Economy Legal System Systemic Risk Market Access / Hurdles Market Efficiency Market Liquidity Information Transparency "Greeks" Yield Curve Risk Model Risk Market Risk Dividends "Greeks" Basis / Spread Risk F I G U R E 1-10 Example of Transaction Breakdown, Process-Oriented Flow of Different Risk Categories Involved.

In the context of TQM, quality is here defined as follows:10 quality The fulfillment of the agreed-upon requirements communicated by the customer regarding products, services, and delivery performance. Quality is measured by customer satisfaction. CHAPTER 1 22 TQM has five approaches, reflecting the different dimensions of quality:11 • • • • • Transcendent approach. Quality is universally recognizable and is a synonym for high standards for the functionality of a product. The problem is that quality cannot be measured precisely under this approach.

The following is the definition of risk management as used used throughout this work: risk management In a broad sense, the process of protecting one’s person or or­ ganization intact in terms of assets and income. In the narrow sense, it is the mana­ gerial function of business, using a scientific approach to dealing with risk. As such, it is based on a distinct philosophy and follows a well-defined sequence of steps. 2 History of Modern Risk Management Risk management is an evolving concept and has been used in the sense de­ fined here since the dawn of human society.

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