James Adams is a Senior Analyst at Sageworks, a leading provider of credit risk management, loan loss reserve and stress testing software to financial institutions.
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For instance, one European bank that operates in several countries has implemented a credit risk management system that enables it to use analytics to improve the pricing of its credit products.
Going forward the bank should actually apply the Equator Principles, a voluntary credit risk management framework with a set of guidelines for environmental and social risk assessment in sustainable project finance activities.
But the basics of credit-risk management have been reinforced rather than overturned.
Reform of financial institution supervision, notably lax lending standards and the need for a measured move towards greater transparency in credit and risk management, is being discussed at the meting.
But there is no doubt that the summit's action plan includes a long list of financial sector dimensions to be addressed, including: accounting standards, hedge funds, risk disclosures, financial sector assessments, credit rating agencies, risk-management and stress-testing models, international standard setters, sanctions for misconduct, reporting to supervisors in different countries, and more.
New lessons have been learned in the past few months about diversification and the management of credit risk.
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With the latest technology, says Cho, the bank can measure the profitability of every branch employee and customer, mine its customer database and run sophisticated risk-management and credit-analysis programs.
He explained that his organization was highly functionalized with separate units for sales, trading, investing, portfolio management, credit, risk, and operations some of which reported to him and some to the corporate center.
Hedging credit risk is not uncommon, and if done properly, reflects sound risk management.
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The banks have hired western consultants to teach them about risk-management systems, credit-scoring and tackling bad loans.
The rating firm found in an Aug. 3, 2011, credit opinion that one of MF Global's "credit strengths" were efforts to "strengthen risk management, " according to the subcommittee's letter.
"Past experience has taught us that a bad loan crisis usually came three years after a period of abnormal credit surge, " Wei Guoxiong, chief risk management official with the Industrial and Commercial Bank of China was quoted as saying by the Xinhua news agency.
Secondly there is the credit risk issue attached to the mushrooming of wealth-management products, an asset class of uncertain size and quality which banks created in order to attract deposits with higher rates of return.
Discover managed to stay ahead of the market trend through prudent risk management and reported a 7% decline in average credit loans outstanding during the post financial crisis period.
The owner of Boundless LLC, a training and consulting firm for risk management and compliance, said he previously has used the credit line for technology upgrades, operational improvements and marketing.
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Analysts questioned the firm's risk management during the Wednesday conference call, especially regarding the incident on the credit desk in London.
The suggested revision adds two ideas to the same basic regime: in deciding how much capital is needed, make greater use of, first, credit-rating agencies' measures of risk and, second, banks' internal risk-management models.
Create financial risk management controls reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous.
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Across the board, the firms have taken billions in write-downs for exotic credit derivatives that just a few months ago were the hottest business on the Street and not seen as a huge risk management issue.
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