Finalyse offers a comprehensive range of services related to Credit Risk, including:
Economic Capital and Links with Pillar II Requirements
The key risk indicators for credit risk are generally captured through an Economic Capital framework, which requires among other things the development of specific rating and correlation models.
Other elements of credit risk management relate to country risk assessment, various applications of credit derivatives and credit spreads.
Many leading financial institutions are bringing their implementation of Pillar I minimum capital requirement to an end. But have they reached the end of their Basel III implementation after a long and difficult journey?
The answer is no, and the reason is Pillar II (Supervisory Review Process).
In terms of number of lines of regulation Pillar II is a lot less vast than Pillar I, but its impact on risk management is more significant.
The reason is that with Pillar II, regulators are forcing the industry to take the responsibility for effectively assessing, measuring and managing risk and capital adequacy themselves.
Financial institutions will need to prove that they have internal processes and systems in place to measure and manage all of their risks; market risk (including interest rate risk in the banking world), credit risk (including concentration and country risk), operational risk, business risk, liquidity risk, strategic risk and the risk of the portfolio as a whole.
This underlines Finalyse's conviction that regulatory compliance must be viewed within the context of a wider enterprise-wide economic value management infrastructure covering the identification, measurement, monitoring, storage & dissemination of risk and performance information.
Finalyse has the skills and experience to help you in the implementation of these different elements, whatever the level of integration of the economic risk framework.
We can also assist banks with their Pillar II requirements and develop and implement sophisticated internal economic capital models, or perform a validation of the existing economic capital models, based on a comprehensive model validation framework.
Credit Risk Modelling Toolkit
Tailored to your modelling methodologies and business requirements, Finalyse credit risk modelling toolkit provides a flexible platform to support your model development and validation teams (whether centralized or distributed across countries) to create compliant PD, LGD and EAD/CF models built on SAS Enterprise Miner. This enables you to save time from model request to implementation, and reduces models risks such as non-compliance with internal and regulatory requirements, mis-specification, poor documentation, or limited modelling experience. The resulting model code can be version-controlled and implemented without additional work or used to validate implementation. It is a transparent, customized environment that builds on decades of expertise and experience in modelling and SAS development accumulated at Finalyse.
What benefits can you expect with our Credit Risk Modelling Toolkit service?
- Reduces model risk, cost and time of development and maintenance
- Same toolkit for all modellers and validators
- Common interpretation of methodology and guaranteed compliance
- Flexible use of nodes in workflows
- Transparent challenge of standard methodology
- Easy to learn and roll-out
Pillar II covers not only the Economic Capital framework but also the setting-up and implementation of the necessary tools for analysing concentration risk and performing various stress testing exercises.
Finalyse has practical experience of analysing, designing and implementing the tools its clients need in order to comply with these new regulatory and reporting requirements.
Finalyse has gained a profound experience in credit modelling (PD, LGD, EAD) in light of the transition to IRB-A approach for several of its clients.
This experience is now made available through our Finalyse credit risk modelling toolkit, which provides a flexible platform built around Enterprise Miner.
Transparent, customized to your requirements, this environment will support your model development and validation teams during creation of compliant PD, LGD and EAD/CF models.
Credit Risk Model Validation
What does our Credit Risk Model Validation Service offer you?
Finalyse’s "Credit Risk Model Validation" service determines whether the models and the monitoring framework that assures their reliability are methodologically sound and compliant with relevant regulations - such as Basel III and IFRS 9 – as well as your internal standards. In addition, this service provides you with a comparison to industry best practices. The resulting ‘Validation Report’ gives you an independent and detailed assessment of your models and the related infrastructure. It identifies the strong and weak points of your models, their fit to your environment and actions for improvement. You will benefit from the sound track record of Finalyse of more than 20 successful projects in regulatory and internal compliance gap analysis; qualitative and quantitative analysis of existing scorecards, PD, LGD, EAD/CF and other models.
What benefits can you expect with our Credit Risk Model Validation Service?
- Identification of major model weaknesses/ enhancement possibilities
- Identification of gaps vs. regulatory/internal requirements PLUS ready-made materials for regulators and/or internal audit
- Mitigation of model risks
- Getting best practice benchmarks
- Placing the bank’s models within the model landscape of the industry
Credit Data Management
Credit risk quantification requires robust and solid data foundations designed according to business and reporting needs. Moreover, these needs generally involve complex and high volume data processing.
In this context, Finalyse has accumulated years of experience in data warehouse design and implementation and data processing with various software and reporting tools.
Counterparty Credit Risk
The modelling and calculation of exposures for the trading book is an area where Finalyse has gained relevant expertise. As a result, Finalyse can provide assistance in the area of Counterparty Credit Risk, assisting the financial institutions in the implementation of solutions for calculating exposures for capital (EPE) and credit limit purposes (PFE).
Implementation of Credit Risk Management Solutions
For a proper implementation of a risk management solution, it is crucial that all steps of the implementation process are respected. This covers a conceptual, business and functional analysis followed by a technical analysis preceding the implementation. Finalyse consultants are very experienced in conducting and documenting these different steps, together with the required Delivery Management skills and tools. The latter are provided by Finalyse, in line with the scope of the project.