Risk Management Practices in Retail and Private Banking - a Three Days Course for Industry Practitioners
DAY ONE
Managing Retail Franchises in Highly Competitive Environments and Measuring/ Managing the Associated Risks
Branch vs. Branchless Banking – getting value for investments in francises
- Measuring franchise value in fragmented retail markets
- Managing risks through the business cycle
- Investment at Risk
- Customer Volatility
- Product Coverage and Margin Volatility
- Cash Flow at Risk
Overview of Retail Banking Business Models and inherent Risks for Banks
- Customer Servicing Business Models – lessons from the past
- Franchise Resiliency and Customer Price Elasticities
- Modeling Behavioral Volatilities (Quantities, Unit Prices, Margins)
- The Paradigm of achieving homogeneity through large, mixed franchises
- Case Study on Size Optimality
The Liability Side
- Term Deposits and Saving Accounts
- The Fable of “Cheap Funding” via retail deposits
- Non Maturing Liabilities – Risks
- Customer Replication Dynamics
- Margin volatility – no competition
- Margin volatility – with competition
Break
The Asset Side
- Credit Cards
- Consumer Loans
- Non Collateralized
- Collateralized
- Mortgages
- Single Dwelling Units
- Multiple Dwelling Units
- Customer Tailored Mortgage Products – Risk Identification
- Non Maturing Assets – Portfolio Replication Techniques
- Margin stability vs. optimizing Profits
- Modeling Volume Variation
- Liquidity Constraints
- Risks of the Originate to Distribute Model
- Lessons from the Credit Crunch
Transfer Pricing Issues
- Risks associated with the Market Rate Models
- Risks associated with the Time Lag Models
- Case Studies on Transfer Pricing Risks
Risks inherent in using Customer Rating Models
- Model risk
- Customer Dynamics under Economic Uncertainty
- Risks associated with de-coupling the asset and liability sides when employing scoring models
Credit Risk Management in Retail Banking
- Measuring the Effects of Diversification
- The leptokurtotic effects of defaults in volatile business cycles
- Concentration Risks
- Risk Mitigation and “the Risks of Risk Mitigation”
- Securitization of Assets
- Replicating Portfolios and Hedging
Risks associated with “Advisory Businesses”
- Legal & Operational Risks of Retail Securities Brokerage
- Impacts on Financing Businesses
Managing Customer Margin Volatility
- Measuring the Benefits of Diversification
- Managing Optimal Customer Products/ Services Pallet
Best Practices in various geographies
DAY TWO
Managing Risks in Wealth Management Businesses
Key Success Factors in Managing Profitable Private Banking Businesses
- Performance of Managed Customer Accounts & Impact of Performance Volatility
- Case Study of Performance Enhancing Techniques in Competitive Environments
- Changes in Customer Elasticities to Performance Track Records
- A Historical Perspective
- Objective vs. “Emotional” Customer Behavior
Measuring and Managing “Fee Income at Risk” in Private Banking
- Determining Key Factors Impacting Fee Income
- Modeling Fee Income in Private Banking
- Aligning Fee Income volatility to Key Factors
- Exogenous
- Endogenous / Idiosyncratic
Break
Risks of Collateralized Lending to High Net Worth Individuals
- Haircuts Management in competitive Lending Environments
- Measuring & Managing Collateral Volatility
- Liquidity concerns
- Reposession concerns
- Measuring Dependencies of Fee Businesses and Collateral Lending
- Testing Assumptions on Elasticities to macroeconomic factors
- Dependencies between Default Probabilities and Collateral Market Values
- Case Study on establishing Haircuts
- Constraints imposed by Market Practices
- Periodical Margining
- Marking collateral to Market
- Securitizing / Syndicating Collateralized Loans: „Right Way Trades“, “Wrong Way Trades”
- Costs associated with collateral Liquidation - Case Studies
- Aircraft / Yacht
- Securities Portfolio
- Legal Constraints
Measuring Profitability and Effectiveness of Private Banking Practices
- Attaching a Value to Franchises – Case Study: Swiss Bank
- Determining appopriate Benchmarks under opaque Information
- Determining Measurement Factors:
- Short Term vs. Long Term
- Size of Portfolio under Management
- Pallet of Bundled Services– Added Value - Case Study of “Platinum Credit Card”, Case Study of “Free Current Account”
- Industry Best Practices
DAY THREE
Operational Risks in Retail and Private Banking
Key Risk Drivers
- Why are Private Banking Operations Riskier than Retail Banking?
- Case Study on Identifying appropriate Operational Risk Drivers
Cost/ Benefit Analysis of Operational Risks Management
- Retail
- Wealth Management
Investing in Early Warning Systems – a Cost / Benefit Taxonomy
- Retail Banking & other homogenous large scale operations
- Wealth Management
Break
Risk Adjusted Performance Measurement of Retail / Private Banking Businesses
- Why is Return on Op Risk VAR meaningless?
- The Traps in using RAROC as a Performance Measurement Indicator
- Alternative Measures
- Industry Benchmark Studies
Audit Reports as Value Enhancement Tools
- Proactive vs. Reactive Auditing – Case Study: German Bank
- The Art of cataloguing Audit Reports
- Deriving Value from Qualitative Audits – Case Study
Conclusion & Discussion