Board of Directors Risk Training Package
The field of risk management has come a long way over the last three decades. Models, terminology, tools, techniques, conventional wisdom, exceptions – as a Board member we all have difficulty tracking the numbers and reports that come our way for every board risk committee meeting.
The Board of Directors packet is a self study packet aimed at Board members who would like a quick refresher on risk management at their own pace and time. Created with Board members in mind, it is based on similar CxO and Executive Committee member workshops we have run in the past. In addition to reviewing tools and techniques, we also spend a fair bit of time in building the right mindset and introducing a framework that you can use to assess, evaluate and approve risk appetite and risk capital at your financial institution.
The Board of Directors Course Package provides the knowledge and tools needed for assessing and interpreting data and results and making decisions in light of the company’s risk appetite. It provides you with a year-long access to the following risk management foundations:
- Terminology and Framework Crash Course – Everything you ever wanted to ask about risk management but were afraid to ask
- Calculating Value at Risk (VaR) – Hands on power point and excel worksheet based training
- Introducing Asset Liability Management (ALM) – Reports and framework
- A review of Internal Capital Adequacy Assessment Process (ICAAP) – Mindset and sample reports
- Planned changes and upgrades to Basel II – Or what you really need to know about Basel III
- Counterparty and other associated Limits – Review of limits framework
This includes course content in on-line format as well as video courses and downloadable pdf and MS excel files that you can work with on your own pace.
Who are you? Who is this course meant for?
You are a senior member of the executive team, a member of the Board of Directors as well as a member of the subcommittees dealing with Risk, Risk Capital, Credit, and Credit Approvals and by extension counterparty limits. You serve the Board of a bank, a bank holding company, an investment management firm, an asset management firm, a life insurance company or an investment bank or brokerage house. While you have reviewed this material in depth as part of your work, education, professional qualification and profile, you are looking for an independent, agenda free and neutral resource that can help you confirm what you already are aware of at an instinctive level. Your primary motivation for doing this is to comply with your fiduciary responsibilities as a member of the Board. You are also interested in staying current with the field as well as being prepared to review the materials and reports your risk management consultants have been sending your way.
What am I buying when I buy the Board Risk Committee packet?
A synopsis of each risk course included in the package is given below:
1. Terminology and Framework Crash Course
“The everything you ever wanted to know about risk management crash course” is a video course that explains core foundation concepts such as:
a) What is risk exactly?
b) What should be the right risk management mindset?
c) What is volatility and correlation and how do we use them?
d) How is optionality linked with volatility and convexity?
The course also includes a basic introduction to value at risk, capital and limit management frameworks for a treasury function. It comprises of 4 parts as follows:
|a.||Part 1: Risk & Context||Part 1a – 38:19 min|
Part 1b – 19:48 min
Part 1c – 22:58 min
|b.||Part 2: Value at Risk||Part 2a – 36:06 min |
Part 2b – 23:39 min
|c.||Part 3: Capital||Part 3 – 41:15 min|
|d.||Part 4: Limits||Part 4 – 44:12 min|
To test the knowledge gained from this course there is also a quiz (4 parts) provided in MCQ format.
2. Value at Risk (VaR)
Calculating Value at Risk walks the reader through a step-by-step process for determining the VaR measure that gets used frequently in the risk world. It begins with a review of the various VaR calculation methods such as variance-covariance (VCV), historical simulation and Monte Carlo simulation. It then provides the procedure for calculating VaR under the first two methods for individual assets as well as a simple portfolio of those assets.
An application of using VaR for risk management as well as a tool to forecast and predict the margin shortfall problem is given for the petrochemical industry. This is followed by a number of caveats that highlight the issues of using the VaR measure and what needs to be considered when interpreting and communicating results based on VaR.
The user has access to the course in on-line as well as PDF formats. The latter maybe downloaded and perused at his/her own time and convenience. This is accompanied by fully worked-out examples on calculating VaR and Portfolio VaR in MS EXCEL.
To further demonstrate the calculation and understanding of the VaR measure, a video course on the subject provides the necessary guidelines.
To test the knowledge gained from this course there is also a quiz provided in MCQ format.
3. Asset Liability Management
Asset Liability Management (ALM) involves taking decisions and actions regarding assets and liabilities in an integrated manner in order to manage the business of the entity and meet the organization’s financial objectives. It is a continuing process that involves formulating, implementing, monitoring and revising strategies related to its assets and liabilities keeping in mind the entity’s risk tolerances and constraints.
The Asset Liability Management (ALM) Crash course starts off with basic and core concepts and quickly delves into core tools including Gaps, Earnings at Risk and Cost to close reports. In addition to the traditional mismatch focus, the course also includes a short section on Liquidity Management as well as a related concepts section with relevant equations and ALM formulae.
The user has access to the course in on-line as well as PDF formats. The latter maybe downloaded and perused at his/her own time and convenience. The course also includes MS EXCEL examples and templates for:
- Duration Convexity Example
- ALM – Crash Course – EXCEL Examples (Examples include: Cost of Close Liquidity Gaps, Cost of Close Interest Rate Risk, Earnings at Risk, Market Value of Equity)
Capital Adequacy was the principal message of the Basel II framework. Pillar 2 of the Basel II Accord, Internal Capital Adequacy and Assessment Process (ICAAP for short) was introduced with the objectives of managing the risk profile and capital requirements of an active bank using an internal and invasive assessment of the capital profile of the bank. The ICAAP process allocates and attributes risk capital to all significant sources of risk, stress tests the results and keeps the board informed of any expected or projected capital shortfall. Under the process banks would need to have in place internal procedures and processes to ensure that they possess adequate capital resources in the long term to cover all of their material risks.
The ICAAP course reviews the historical background behind the development of Basel II, some of the requirements of the ICAPP process and the main sections that should ideally comprise an ICAAP report. The course presents an extract from a sample ICAAP report in particular, the Executive Summary and examples of methodology used to quantity and aggregate risks.
The ICAAP process makes use of internal models for assessing, quantifying and stress testing risk drivers and capital charges. In the course, the building blocks of model construction is reviewed which is based on Emanuel Derman’s paper on “Model Risk”. One methodology for calculating the probability of default used in the quantification of credit risk is discussed. Some stress tests that can be applied to credit, market and liquidity risk are also reviewed.
The user has access to the course in on-line as well as PDF formats. The latter maybe downloaded and perused at his/ her own time and convenience.
The course also includes a Sample ICAAP Report Template as well as a MS EXCEL example for quantifying credit risk.
5. Basel III
Basel III aims to resolve the weaknesses and fill in the loopholes of the current Basel II framework that became apparent in the recent financial crisis. Basel III introduces significant reforms to the Basel II framework addressing both firm-specific risk as well as system-specific systemic risk factors. These improvements should lead to a stronger capital position for the global financial system which should help it withstand significant periods of economic stress as experienced in the recent past which resulted in numerous bank failures and huge taxpayer bailouts.
The Basel Committee published the “International framework for liquidity risk measurement, standards and monitoring” a document that discusses the liquidity portion of the Basel III reforms . These reforms cover the supervisory framework for liquidity risk measurement via two minimum funding liquidity standards, the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). It also presents five metrics that will be used by banks and supervisors as tools for monitoring and tracking a given institution’s liquidity position and for identifying signs of early liquidity difficulty and stress.
The Basel III- Liquidity Framework course discusses these reforms and metrics. The course also outlines a framework for estimating liquidity risk capital for a bank and three case studies of liquidity risk management events that have occurred in the recent past. The course also presents how the liquidity crisis may be linked to the LCR and NSFR. The user has access to the course in on-line as well as PDF formats. The latter maybe downloaded and perused at his/ her own time and convenience.
6. Setting Limits
There are a number of challenges when it comes to communicating, enforcing and setting limits in a trade, treasury, portfolio and risk function. The Setting Limits video course proceeds from the concepts covered in the earlier two courses.
It introduces the linkage between Stop loss and Value at Risk by defining the median trading loss. The median trading loss is then linked to a VaR confidence level that can be used for communicating results and suggesting limits to Board Risk Committees.
The concept of odds associated with risk, value at risk and risk management is introduced. The interpretation problems that Board members face when seeing extreme probabilities linked to those losses is also highlighted.
The course then discusses Pre Settlement Risk (PSR) limits calculations. These are counterparty limits based on a VaR measure that calculates the worst case likely loss on account of default on settlement date by a given counterparty.
The approach used highlights the usage of maximum, minimum and median volatilities and suggests that the underlying VaR estimates need to be reviewed more frequently than the once in 2 or 3 year practice often observed in the region.
The course also includes MS EXCEL examples.
To test the knowledge gained from this course there is also a quiz provided in MCQ format.
An individual one-year access to the Board Risk Committee member packet with all the above materials is priced at US$ 799 per year.
If you are a serving Board member you may also be interested in the added option of 5 hours package of individual one-on-one session through email or phone calls priced at US$ 899 per 5 hours.
In our experience with consulting and advising different boards over the years we have found that after reviewing the material most customers have follow-on questions specific to their situation which can be easily addressed through an individual one-on-one session.
The one-on-one sessions are handled directly by Jawwad Farid. Jawwad has worked with Boards and Senior Executive teams working specifically on answering questions related to and dealing with Risk, Risk Management and Risk Frameworks.