The client is a subsidiary of one of the largest
European Global Systemically Important Banks (GSIB) with banking activities, treasury and trading.
The client was looking to improve its IRRBB measurement framework to better integrate it in its ALM strategy. On top of this, an ECB on-site inspection focusing on IRRRB framework has been conducted at the Group level leading to a set of areas of improvement on the methodology used for computing IRRBB metrics and its operational processes.
Avantage Reply has been requested to provide subject matter expert support to design and implement IRRBB metrics. Facing key areas of improvements in terms of IRRBB measurement, there were several challenges with different layers like risk identification, risk quantification, methodology implementation, data availability, information system dependence for the risk department impacted by this activity.
The mission started by conducting an in-depth analysis at both local level and group level for governance, policies, procedures and operations required to be implemented for all local levels within the Group. A four step,
top-down approach was applied:
1. Set properly target required by the Group;
2. Highlight current state’s findings;
3. Point out gaps between targets and findings;
4. Analyze gaps with several actions to perform in order to set a general roadmap with a global action plan.
Due to the specific context, each step was performed around different axes of analysis: 1 – Risk perimeter; 2 – Activities perimeter in terms of Group Treasury (GT) monitoring; 3 – Methodology review; 4 – Operational process review; and 5 – Information systems and data.
A short term tactical solution was adopted for
Group Treasury (GT) reporting & analysis to strengthen the existing reporting process by capitalizing on the Group expertise via Murex development. Long term strategical solutions were adopted to review structural issues related to the balance sheet’s assets modeling for all business lines outside of Group Treasury.
The completion of the project allowed the local entities to comply with the Group’s minimum standards and methodological requirements. This will improve 1 - IRRBB metrics measurement; 2 - efficiency in the reporting process and 3 - the risk analysis and its understanding in the evolution of IRRBB metrics over time. The mandate has been
successfully completed regarding the design of all the key steps for implanting the reinforcement of IRRBB risk metrics through strong methodology usage. Additionally, efficiencies were created through the implementation of a new operational process for the reporting and the analysis which is currently in-progress and planned for integration into the internal risk management and steering process.