外文翻译
原文
Commercial Bank Risk Management: An Analysis of the Process
Material Source:Journal of Financial Services Research
Author: Anthony. M. Santomeor
The past decade has seen dramatic losses in the banking industry. Firms that had been performing well suddenly announced large losses due to credit exposures that turned sour, interest rate positions taken, or derivative exposures that may or may not have been assumed to hedge balance sheet risk. In response to this, commercial banks have almost universally embarked upon an upgrading of their risk management and control systems.
Through the past academic year, on-site visits were conducted to review and evaluate the risk management systems and the process of risk evaluation that is in place. In the banking sector, system evaluation was conducted covering many of North America's super regionals and quasi-money-center commercial banks, as well as a number of major investment banking firms. These results were then presented to a much wider array of banking firms for reaction and verification.
1. What type of risk is being considered?
Commercial banks are in the risk business. In the process of providing financial services, they assume various kinds of financial risks. Over the last decade our understanding of the place of commercial banks within the financial sector has improved substantially. Over this time, much has been written on the role of commercial banks in the financial sector, both in the academic literature and in the financial press. These arguments will be neither reviewed nor enumerated here. Suffice it to say that market participants seek the services of these financial institutions because of their ability to provide market knowledge, transaction efficiency and funding capability. In performing these roles, they generally act as a principal in the transaction. As such, they use their own balance sheet to facilitate the transaction and to absorb the risks associated with it.
To be sure, there are activities performed by banking firms which do not have direct balance sheet implications. These services include agency and advisory
activities such as(1) trust and investment management; (2) private and public placements through ``best efforts'' or facilitating contracts; (3) standard underwriting through Section 20 Subsidiaries of the holding company; or (4) the packaging, securitizing, distributing, and servicing of loans in the areas of consumer and real estate debt primarily. These items are absent from the traditional financial statement because the latter rely on generally accepted accounting procedures rather than a true economic balance sheet. Nonetheless， the overwhelming majority of the risks facing the banking firm are on-balance-sheet businesses. It is in this area that the discussion of risk management and of the necessary procedures for risk management and control has centered. Accordingly, it is here that our review of risk management procedures will concentrate.
2. What kinds of risks are being absorbed?
The risks contained in the bank's principal activities, i.e., those involving its own balance sheet and its basic business of lending and borrowing, are not all borne by the bank itself. In many instances the institution will eliminate or mitigate the financial risk associated with a transaction by proper business practices; in others, it will shift the risk to other parties through a combination of pricing and product design.
The banking industry recognizes that an institution need not engage in business in a manner that unnecessarily imposes risk upon it; nor should it absorb risk that can be efficiently transferred to other participants. Rather, it should only manage risks at the firm level that are more efficiently managed there than by the market itself or by their owners in their own portfolios. In short, it should accept only those risks that are uniquely a part of the bank's array of services. Elsewhere (Oldfield and Santomero, 1997) it has been argued that risks facing all financial institutions can be segmented into three separable types, from management perspective. These are:
(1) risks that can be eliminated or avoided by simple business practices; (2) risks that can be transferred to other participants; (3) risks that must be actively managed at the firm level 3.Bank risk management systems
The banking industry has long viewed the problem of risk management as the need to control four of the above risks which make up most, if not all, of their risk exposure, viz., credit, interest rate, foreign exchange and liquidity risk. While they recognize counterparty and legal risks, they view them as less central to their concerns. Where counterparty risk is significant, it is evaluated using standard credit
risk procedures, and often within the credit department itself. Likewise, most bankers would view legal risks as arising from their credit decisions or, more likely, proper process not employed in financial contracting. Accordingly, the study of bank risk management processes is essentially an investigation of how they manage these four risks. In each case, the procedure outlined above is adapted to the risk considered so as to standardize, measure, constrain, and manage each of these risks. To illustrate how this is achieved, this review of firm-level risk management begins with a discussion of risk management controls in each area. The more difficult issue of summing over these risks and adding still other-more amorphous-ones such as legal, regulatory or reputation risk, will be left to the end.
4.Credit risk management procedures
As noted above, each bank must apply a consistent evaluation and rating scheme to all its investment opportunities in order for credit decisions to be made in a consistent manner and for the resultant aggregate reporting of credit risk exposure to be meaningful. To facilitate this, a substantial degree of standardization of process and documentation is required. This has lead to standardized ratings across borrowers and a credit portfolio report that presents meaningful information on the overall quality of the credit portfolio. In table 1, a credit-rating procedure is presented that is typical of those employed within the commercial banking industry. At some institutions, a dual system is in place where both the borrower and the credit facility are rated. In the latter, attention centers on collateral and covenants, while in the former, the general creditworthiness of the borrower is measured. Some banks prefer such a dual system, while others argue that it obscures the issue of recovery to separate the facility from the borrower in such a manner.
5.Areas where further work will improve the methodology
The banking industry is clearly evolving to a higher level of risk management techniques and approaches than have been in place in the past. Before the areas of potential value added are enumerated, however, it is worthwhile to reiterate an earlier point. The risk-management techniques reviewed here are not the average, but the techniques used by firms at the higher end of the market. The risk-management approaches at smaller institutions, as well as larger but relatively less sophisticated ones, are less precise and significantly less analytic. In some cases they would need substantial upgrading to reach the level of those reported here. Accordingly, our review should be viewed as a glimpse at best practice, not average practices.
Nonetheless, the techniques employed by those that define the industry standard could use some improvement. By category, recommended areas where additional analytic work would be desirable are listed below.
A. Credit risk
The evaluation of credit rating continues to be an imprecise process. Over time, this approach needs to be standardized across institutions and across borrowers. In addition, its rating procedures need to be made compatible with rating systems elsewhere in the capital market.
Credit losses, currently vaguely related to credit rating, need to be closely tracked. As in the bond market, credit pricing, credit rating and expected loss ought to be demonstrably closer. However, the industry currently does not have a sufficiently broad database on which to perform the migration analysis that has been studied in the bond market.
The issue of optimal credit portfolio structure warrants further study. In short, analysis is needed to evaluate the diversification gains associated with careful portfolio design. At this time, banks appear to be too concentrated in idiosyncratic areas, and not sufficiently managing their credit concentrations by either industrial or geographic areas.
B. Interest rate risk
While simulation studies have substantially improved upon gap management, the use of book value accounting measures and cash-flow losses continues to be problematic.Movements to improve this methodology will require increased emphasis on market-based accounting. However, such a reporting mechanism must be employed on both sides of the balance sheet, not just the asset portfolio.
The simulations also need to incorporate the advances in dynamic hedging that are used in complex fixed income pricing models. As it stands, these simulations tend to be rather simplistic, and scenario testing rather limited.
C. Foreign exchange risk
The VAR approach to market risk is a superior tool. Yet much of the banking industry continues to use rather ad hoc approaches in setting foreign exchange and other trading limits. This approach can and should be used to a greater degree than it is currently.
D. Liquidity risk
Crisis models need to be better linked to operational details. In addition, the usefulness of such exercises is limited by the realism of the environment considered.
If liquidity risk is to be managed, the price of illiquidity must be defined and built into illiquid positions. While this logic has been adopted by some institutions, this pricing of liquidity is not commonplace.
E. Other risks
As banks move more off-balance-sheet, the implied risk of these activities must be better integrated into overall risk management and strategic decision making. Currently, they are ignored when bank risk management is considered.
F. Aggregation of risks
There has been much discussion of the RAROC and VAR methodologies as an approach to capture total risk management. Yet, frequently, the decisions to accept risk and the pricing of the risky position are separated from risk analysis. If aggregate risk is to be controlled, these parts of the process need to be integrated better within the banking firm.
Both aggregate risk methodologies presume that the time dimensions of all risks can be viewed as equivalent. A trading risk is similar to a credit risk, for example. This appears problematic when market prices are not readily available for some assets and the time dimensions of different risks are dissimilar. Yet, thus far no one firm has tried to address this issue adequately.
Finally, operating such a complex management system requires a significant knowledge of the risks considered and the approaches used to measure them. It is inconceivable that Boards of Directors and even most senior managers have the level of expertise necessary to operate the evolving system. Yet government regulators seem to have no idea of the level of complexity, and attempt to increase accountability even as firm level risk management systems increase in sophistication.
商业银行风险管理——分析的过程【外文翻译】
