You are a bank: what to do to reduce risks?

Imagine that you are a bank. On the one hand, you need to prove to the regulator that you are reliable (that is, to do something to be such), and on the other hand, to minimize costs. At the same time, it is impossible to cut obviously important things for safety and insurance against fakap, therefore one of the few successful ways to reduce your expenses is to use terabytes of collected data to optimize processes.

This is part of risk management, which has become particularly relevant lately.
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So, you have 4 main types of risks:

1. Credit risks, when the borrower simply does not return the funds, even despite the presented iron.
2. Market risks (risks associated with changes in asset prices).
3. Liquidity risks (that you will not be able to fulfill your payment obligations on time, for example, if a huge number of panicked depositors immediately rumble to you with shouts of “turn everything back and forth”).
4. Operational risks - everything else that does not fall into paragraphs 1-3. This may be the hijacking of a cash collector, misuse of funds and so on. By clever, you already have a huge database with an understanding of when and what was lost.

Since you are already a fully formed bank, you were able to customize and use all the world risk management practices from points 1–3: these are complex, but still fairly formalized processes. Operational risk is worse, because the question is not very clear. It is now quite obvious that the task of managing operational risks requires quite specific procedures for collecting and analyzing data, that is, a host of methodological and organizational measures.

The situation is still interesting in that all future risk management will need to be described by the regulator. For example, now the Central Bank requires you to simply lay a certain percentage of the profits in insurance against such risks. Roughly speaking, it looks like this: the more you earn, the more you risk, and the more you need to reserve funds. There is a second possibility (which will soon appear) - it is connected with the fact that you can reduce the load on capital to cover operational losses, if you justify that you are really all right.

How does it work on the fingers?

Imagine a hypothetical dialogue with the Central Bank.

Securities:
- How much do you earn?
You:
- 100 000 rubles.
Securities:
- Then you need to reserve 10,000 rubles, because you can make a mistake on them.
You remember your friend Petya (suppose he is also a bank) and specify:
- Is it true that Petit-gouging the same reserve?
- Yes, - says the Central Bank, the same - 10 000 rubles.
- But I have a super experience, I constantly go to trainings, I don’t drink, I don’t smoke and I do everything to become better. And Petya is drinking, he is hammering him to work, and tomorrow they are ready to fire him already. It turns out that you treat me like Pete?
- Yes. And we give you the same risk as for the case when Peter screwed up. He is the most irresponsible in the team, and the others are equal in scale of the error.
- Well, if so, I will drink and skip work too. I have no incentive to be good.
- Ok, ok, you are well done, you know how to manage your risks. Is there a reasonable method, just to be sure?
You are getting hell a bunch of papers:
- Here I have a technique, according to which I must reserve 8 thousand, and not 10.
Securities:
- Ok, persuaded.

At the same time, Petya can “roll in” 20 if he shows his “hammer on everything” method, so he decides to stay on the old “like everything” (like Peter) and pay 10.

As a result, the “good” transition to the advanced method leads to lower costs. Considering that the bank’s vulnerability to risks does not change (because the system was already used), it’s just a release of resources.

So what?

According to a number of data, soon the Central Bank will give banks the opportunity to calculate risks by their internal models. To do this, there must be two things:

1. Base operating losses for 3 years.
2. The bank must show that its method of collecting these data + method of assessing operational risks is adequate from the point of view of Central Bank experts.

Does it really work?

Yes, we considered for several banks (unfortunately, I can’t read more), and it turns out that on average, the operational risk decreases by about 20%. This means that you can free up 20% of the amount that was previously frozen as a reserve in this direction. ROI - from 30 to 200%. Usually, the first year is spent on the fact that the system “fits off” on the costs of implementation.

Why are they doing this now, and not when the Central Bank will introduce changes?

Because the bank must keep track of operating losses in a certain way. You also need to protect the method of collecting information and protect the methodology for assessing the value of operational risk. Now we are automating such processes. To do this, we introduce systems tailored to the methodology of a particular bank - or we help to deliver such a methodology (used in advanced countries and meeting the requirements of Basel II).

Not IT specialists work with the delivered system in the bank itself. In the IT department it comes as part of the task of setting up services so that there are fewer failures. The operational risk department manages the system.

There are banks that have neither methods nor system data collection on operational losses. There are banks where operating losses are collected in the XLS-file (or on paper) and then evaluated by experts. There are cases when data is collected correctly, but not synchronized in a large branch network or synchronized crookedly, by hand. In such cases, we put everything from scratch, since there are specialists with the necessary experience. That is, we introduce a modern risk management technique, if it does not exist, and we put everything that is important for the subsequent protection of the regulator.

Right now there is no incentive to deal with risks, but in the future there will most likely be no options left. And at this point you need to be ready.

Another feature

My practice has shown that when working through a question, the facts of losses are often uncovered, about which no one at all thought. Sometimes a number of simple recommendations reduces the risk at times, sometimes you can and should do additional research in other departments. As a result, this leads not only to cost optimization, but also to the actual reduction of risks.

Summary

It may seem that the correct risk assessment is needed only under the new standards of the regulator. In fact, now many banks are switching to it in order to reduce potential losses and make forecasting more transparent. At the most banal level, this means that when making a decision, the bank becomes several times less hidden risks, which ultimately, of course, affects the earnings of the bank as a whole.