Banks not effectively applying risk tools, says report

Only 31% of banks surveyed – from a pool of 106 – use credit risk tools when deal structuring, said PA in a report entitled Risk-based management in the banking sector. PA also believes that banks could significantly improve their shareholder returns by using their risk management tools to make “better” business decisions, such as risk-adjusted performance measures for staff remuneration.

“Credit risk tools are mostly being used to set prices and for accept/reject decisions, rather than to find an optimal structure for the deal,” said PA.

PA added that many banks are under-utilising their risk tools for the allocation of economic capital. It found that only 56% of banks that took part in the survey used credit risk tools for capital allocation, while 55% use market risk tools and 23% operational risk tools. This is despite increased regulatory and industry focus on risk measurement and capital allocation, particularly operational risk.

The report is an extension and update of a survey that PA conducted last year in response to client interest in Basel II, the proposed new set of rules regarding how much capital large international banks will have to set aside to guard against risk. “If you look at what happened with Basel, with delays and more details coming out, our clients were asking what banks are doing now,” said Eddie Niestat, a senior partner with PA consulting.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here