Gain insight into critical risk areas using OFSAA
Guest post by
Debapratim Dutta, Lead Consultant- Banking and Capital Markets, Oracle Practice, Enterprise Solutions, Infosys Technologies Ltd.
The recent financial crisis has laid bare many myths in risk management. For instance; exposures which were perceived to carry low risk, performed poorly during the crisis, when compared with the ones which were considered to be more risky. Such anomalies could happen because many financial institutions failed to capture the association among multiple sources of risk. To make things worse some board members were even heard saying that they did not understand the risk reports presented to them! Clearly board members failed to make risk adjusted decisions during days leading up to the crisis, as probably they viewed risk management as something needed only for compliance in order to earn more and more return.
Well the bad news is that days of such crony capitalism is over and taking cue from the G20 leaders Basel Committee on Banking Supervision (BCBS) a few days back has put the death knell to what popularly (or unpopularly?) is known as "shadow banking"; by publishing the final set of Basel III guidelines. The Basel III regulations heralds a new era in risk management and ensures what James Gordon Brown, ex British prime minister once opined that, "market needs to free but they cannot be values free".
Now that we are all wiser and the worst is probably behind us, let's try to understand certain key areas in risk management which were overlooked by financial institutions as they were entering into the storm.
- A great number of them actually did not identify and hence did not measure and report certain risk areas such as risks in off balance sheet positions.
- Most of them failed to capture association among multiple risk silos.
- There was zero integration between risk and performance management systems.
Careful introspection reveals that probably the entire share of blame is not only due to people's greed, but the severity of the crisis could have been largely minimized if financial institutions had access to a different kind of technical architecture for their risk management systems.
While many risk vendors are still working hard to catch up with the new risk management mantras introduced by Basel III; Oracle has taken a giant leap in this pursuit and has recently launched a fully integrated suit popularly known as Oracle Financial Services Analytical Applications (OFSAA).
OFSAA comes power packed with sophisticated stochastic modeling, predictive analytics, stress testing, back testing, Monte Carlo simulations and advanced bouquet of performance management analytics. All these using a common technical architecture, data structure fully integrated with each other and a common reporting layer. Even at the level of business users, the interface is common across all risk and performance management solutions.
Such an approach to holistic risk and performance management, paves the way for risk adjusted decision making.
Just imagine if could analyze, which are your most profitable customers and also quantify risks contributed by them using a common interface. What if you could detect fraud using a sophisticated behavior detection algorithm and also at the same time use the same technical architecture and data model for risk assessment.
Well all of these and many more exciting advanced functionalities are now possible thanks to the fully integrated OFSAA suit and last but not the least with OFSAA, financial institutions also won't have to spend sleepless nights in order to migrate to Basel III regime.
Watch out this space as we unearth more complexities in Basel III very soon in our next series!
