Fundamentals of Risk Management

Types of financial risks and prudential regulators

  2 days
Course objectives

  • Understand the reality of banking risks and their costs
  • Address the definition of 'measurement and management' of different risks: market, credit, operational
  • Understand the impact of Basel 2 and and its evolution towards Basel 3 on the equity of a bank
  • Put into perspective the regulatory framework and the recent financial crisis
Course content

The bank's balance sheet

  • Principle of a bank's balance sheet
  • Impact of major operations on the bank's balance sheet
  • Impact on the income statement

Case Study: Understanding through exercises the evolution of a bank balance sheet and the underlying risks

Types of risks

  • Principle, measurement and examples for each type of risk
    • Market Risk
    • Credit and counterparty risk
    • Liquidity Risk
    • Overall interest rate risk
    • Operational Risk

Regulatory environment and Basel 2

  • Regulatory bodies: national and international
  • Regulatory and prudential requirements: Basel 2
  • The cost of equity

Market risk: interest rate, currency, equity

  • The measure of market risk and the concept of VaR
  • The different types of VaR: definition, measurement and applications

Excel Case Study: Illustration of VaR calculations

Credit - Counterparty risk

  • Risk Measurement
    • Internal and external ratings
    • Measurement Models
  • Reality of counterparty risk in the markets
  • Overall management of credit risk and credit portfolio

Operational risk management

  • Inclusion in Basel 2
  • Operational Risk Management and organization in banks

Calculation of regulatory capital

  • Calculation of the capital requirement
  • Basel 2 application ratios
  • The cost of capital - Introduction to RAROC

Case Study: Illustration of extracts from the latest annual report of a bank

The overall interest rate risk

Measurement and management of liquidity risk

  • Current ratios and expected developments
  • Liquidity crisis situation for banks

Case Study: Understanding the measurement and management of liquidity risk by a bank

Cost of risk and profitability requirements

  • The standards and the need for capital
  • Cost of capital and profitability requirements

Towards Basel 3: Expected changes and consequences for banks




Catherine Bienstock

Catherine Bienstock

Catherine, an independent consultant and member of Kortys Working Group, provides expertise on risk management in banks. She has worked in the front office and risk department of BNP before becoming head of risk at Cie Financière Tradition.

Catherine Bienstock also teaches :