Professional Risk Managers’ International Association • Global Event Series • February 2008 • Credit Risk • A survey on credit risk management trends followed by 30 events held across the globe
Survey Breakdown 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Bankers Consultants / Vendors Regulators Academics and Others EMEA Americas Asia Pacific • Respondents were globally spread; 456 from EMEA, 341 from the Americas & 256 from Asia Pacific. They were spread very evenly by Role.
Which credit-related activity is most relevant to you?Bankers & Consultants/Vendors Only
Is the use of credit derivatives and the CDO market a valid market-efficient way of redistributing risk?
Are alternative valuation methods needed for the structured credit markets? • A point to note being that Regulators had a higher % of NO votes – 16.3%.
What is your opinion on the usage of structured products in the future? • A higher proportion (29.4%) of Regulators said the usage of structured products would decrease.
What will be the impact of regulation on the use of structured products?
Are asset-backed securities supported by sub-prime mortgages understood by investors?
Are the ratings produced by the credit rating agencies a valid method of calculating credit risk-weightings? • Regulators were more likely to choose no but with no alternative (57.1%) compared to Bankers (46.7%) & Consultants (41.5%) whereas Consultants were more likely to say no and specify an alternative (36.8%) compared to Bankers (23.3%) & Regulators (20.4%). • Asia Pacific had the highest % of YES votes (34.9%) and made the lowest % of alternative suggestions (15.7%)
Change the Models - approach and inputs, include spread and volatility, improve accuracy, calibration and predictive power Combine Internal and External Rating Establish / Strengthen Internal Ratings & Models Regulatory structure for subprime / CDO / structured products Strengthen risk management practices / due diligence Stress testing Improve Governance of Rating Agencies Assess effectiveness of rating agencies Increased Competition for Rating Agencies Increased disclosures by Rating Agencies Multiple ratings Pay for ratings Reduce conflict of interest in ratings Separate rating for different risk types Separate rating agency for Hedge Funds These were the alternative approaches to using rating agencies suggested by respondents:
As the rating agency fees are paid by the security issuer, does the rating agency owe a fiduciary liability to potential investors in those securities?
Has the Sub-prime Crisis reduced confidence in the rating agencies’ ability to rate complex asset-backed products?
PRMIA keeps its members up to date • On February 21, the Washington DC Chapter of PRMIA, joined by partners, the CFA Institute, discussed credit risk and the Basel II accord in the wake of the collapse of the market for subprime structured assets • Panel I: Portfolio Diversification: Will all bank portfolios look alike under Basel II? • Panel II: Credit Risk: The role of external ratings under Basel II • Links to the audio recordings are at www.prmia.org/Chapter_Pages/WashingtonDC/ • "A very frank exchange of views occurred today. This can only help risk practitioners better understand the tough conditions in the markets.” PRMIA DC Chapter Regional Director Christopher Whalen
Professional Risk Managers’ International Association • Global Event Series • February 2008 • Credit Risk • (Copies of the details of the survey are in your packs. For electronic copies please contact firstname.lastname@example.org)