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Making Sense of the Regulatory Challenges Facing Banks Today and Tomorrow. Subin Paul Master Principal Consultant. Program Agenda. Financial Services Regulatory Landscape Addressing the Challenges with OFSAA Lessons Learned Capital Planning Client Examples. Regulation 2013.

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making sense of the regulatory challenges facing banks today and tomorrow
Making Sense of the Regulatory Challenges Facing Banks Today and Tomorrow

Subin PaulMaster Principal Consultant

program agenda
Program Agenda
  • Financial Services Regulatory Landscape
  • Addressing the Challenges with OFSAA
  • Lessons Learned
  • Capital Planning
  • Client Examples
regulation 2013
Regulation 2013

The Evolving Financial Services Regulatory Landscape

regulation 20131
Regulation 2013

The Evolving Financial Services Regulatory Landscape (continued)

regulation 20132
Regulation 2013

The Evolving Financial Services Regulatory Landscape (continued)

regulation simplified 2013 key regulatory demands institutional objectives
Regulation (Simplified) 2013Key Regulatory Demands & Institutional Objectives

Supervisory Review

Governance & Infrastructure

Reporting Practices

Data Aggregation

enterprise risk finance management aligning with institutional objectives
Enterprise Risk & Finance ManagementAligning with Institutional Objectives
  • Accurate financial reporting and efficient periodic book-close
  • Comprehensive management reporting & analysis
  • Ability to analyse risk and performance together
  • Timely availability of information for financial and management reporting
  • Reconciliation between GL and product-processor balance figures
  • Information at fine-grained detail
  • Seamless, repeatable, automated process that can be configured to meet changing demands
slide9

Addressing the ChallengesOracle Reference Architecture for Enterprise Risk & Finance

Common Staging

General Ledger

Analysis & Reporting

Financial Management

Accounting Hub

Source Systems

Accounting Flow

GL Balances

Ledger Consolidation

Detailed Balances

Billing and Revenue

Data Structures

Customer

Account

Transactions

Ledger

Financial Close & Disclosure

Daily Average Balances

Accounting Rules

Dashboards, Reports, Ad Hoc

CRM

Balances

Balances

Financial Adjustments

Core Banking Systems

Enterprise

Dimensions

Oracle Engines

Common Results

Common Processing

OLAP Analysis

Other Bank Systems (Channel etc.)

Enterprise Finance

(Profitability, FTP, ALM)

Data Quality

Finance, Treasury & Risk Flow

Core Reference

RAPM

Data

Repairs

Enterprise Risk

(Credit, Market, Operational, Liquidity)

Financial

Recon

Market Data

Alerts & Exception- Management

Other Finance & Risk Engines

Adjustments

Risk / Treasury Engines

Finance Engines

Org Structure

Master Data Management

Engineered Systems (Software / Hardware)

slide10

Addressing the ChallengesInformation Flow for Accounting & Reconciliation

Common Staging

General Ledger

Analysis & Reporting

Financial Management

Accounting Hub

Source Systems

Transactions

Balances

Journals

Ledgers

Events

GL Balances

Ledger Consolidation

Detailed Balances

Billing and Revenue

Data Structures

Customer

Account

Transactions

Ledger

Financial Close & Disclosure

Daily Average Balances

Accounting Rules

Dashboards, Reports, Ad Hoc

CRM

Balances

Balances

Reference

Balances

Financial Adjustments

Core Banking Systems

Enterprise

Dimensions

Oracle Engines

Common Results

Common Processing

OLAP Analysis

Other Bank Systems (Channel etc.)

Enterprise Finance

(Profitability, FTP, ALM)

Data Quality

Core Reference

RAPM

Data

Repairs

Enterprise Risk

(Credit, Market, Operational, Liquidity)

Financial

Recon

Market Data

Alerts & Exception- Management

Other Finance & Risk Engines

Adjustments

Risk / Treasury Engines

Finance Engines

Org Structure

Master Data Management

Engineered Systems (Software / Hardware)

oracle financial services analytical applications
Oracle Financial Services Analytical Applications

Financial Services Data Foundation

enterprise risk management
Enterprise Risk Management

Key Capabilities Rendered by the Oracle Suite

Efficient, accurate accounting rules processing, journal postings and ledge maintenance

Accounting

Bringing together of multiple ledgers, accommodating inter-company eliminations and group adjustments

Consolidation

Management of tasks around close of books and preparation of information content for disclosure

Close and Disclosure

Reporting of core financial statements including balance sheet, P&L and income statements

Oracle Suite

Financial Reporting

Accurate balance-figures with additional reference data and other details, down to contract and position levels

Detailed Balances

Balances at account and contract/ position levels reconciled with those in the GL /other ledgers

Reconciliation

  • Quantification of risk, performance and risk-adjusted performance figures

RAPM

  • Fast, timely visualization of detailed information, in synchronization with financial reporting

Management Reporting

the new norm capital planning employing scenarios stress testing
The New NormCapital Planning Employing Scenarios / Stress-Testing
  • ALLL
  • Valuation
  • Gaps, duration, convexity
  • Liquidity gaps
  • Allocations, NII, NIM
  • Transfer price
  • Hedge effectiveness
  • Credit risk Economic Capital
  • Market risk VaR
  • Operational risk Risk VaR
  • Liquidity
  • Capital
  • P&L
  • Balance Sheet
  • Credit, Market & Operational Risks
  • Governance
  • ICAAP by Scenario
  • Variables
  • Variable Forecasts
  • Models
  • Rule Changes
  • Sequences
  • Correlations
previous exercises
Previous Exercises

Lessons Learned from Previous EBA, US Fed & Other Initiatives

  • Huge time, effort and cost investment
    • Scope, supporting data, techniques, tools, personnel
    • Reconciliation to regulatory filings
    • Using results in key capital decisions (e.g. dividend and capital buyback programs)
  • Capturing the interaction between financial planning processes, capital projection and scenarios / stress-testing is difficult
    • Credible and consistent set of business and financial assumptions (revenue, cost, loss estimates and balance sheet) under various scenarios
    • Alignment of financial and risk information
  • Quality of ICAAP and financial planning processes make a difference
    • ICAAP process leveraged in stress-testing and capital planning
    • Ability to integrate capital and liquidity stress testing with contingency plans
capital planning with stress testing a practicable process flow
Capital Planning with Stress-TestingA Practicable Process Flow

Input Data

Baseline Calculations

Stress Calculations

Reporting

Data Quality Checks, GL Reconciliation, Adjustments

Stress Liability Balance

Wholesale/ Retail Exposures

Asset Balance Forecast

Baseline P&L &Balance Sheet

Stress Asset Balance

Common Hierarchies – LOB, Asset Class etc

Stress Credit Loss

Liability Balance Forecast

Stress NIM

GL Data

Baseline Capital Adequacy

Stress Trading and Counterparty losses

Cash-flow

NIM / PPNR

Mitigant Information

Stress Capital Requirement

Stress Provisions

Asset Correlation Info

Credit Loss

Pro-Forma Stress Balance Sheet

Stress P&L and Balance Sheet

Other Common Tasks

Risk Factor Data

Pro-Forma Stress P&L

Reserves / Provisions

Capital Plan Document

Other Historical Data

Stress Capital Adequacy

Valuations

Retained Earnings

Stress Scenario

PD, LGD, Rating Migration matrix

Variables

Variable Forecasts

Trading and Counterparty Losses

Customer Info

Risk Appetite Monitoring

Shocks

Scenarios

Market data

Capital Adequacy

Model Risk Assessment

Models and Methods

Trade data

Model Information and Model Risk Assessment

Action Plan

Securitized Exposures

Risk Appetite Definition and Monitoring

Data Foundation

capital planning process employing scenarios

S1

S2

S3

S4

Capital Planning ProcessEmploying Scenarios

Variables

Forecasts / Shocks

Scenarios

(Concurrent) Execution

Reporting

Baseline Output

Economic Downturn

Unemployment Rate

Unemployment Rate

With Baseline Figures

+3.2%

+4.1%

Balance Sheet

Housing Price Index

  • Plan
  • Stress
  • RWA
  • NII, NFI
  • ALL

+5.2%

+2%

Capital

Regional Recession

Leverage Ratio

Inflation Rate

NFI, NII, ALL

LTV Ratio

-4.2 sd

- 5.1 sd

Stress Output

Rating Downgrade

- 7.4 sd

- 5.4 sd

With Stress Figures

Credit Rating

Balance Sheet

S1

  • Plan
  • Stress
  • RWA
  • NII, NFI
  • ALL

GDP Growth

GDP Growth Rate

S2

Capital

-1.2

+2.4

S4

Index of Industrial Production

NFI, NII, ALL

+0.8

-1.5

S3

capital planning with stress testing hallmarks of successful programs
Capital Planning with Stress TestingHallmarks of Successful Programs
  • Builds Management Insight
  • Has Comprehensive Coverage
  • Enables Sound Capital Planning
  • Lends Flexibility and Scalability
  • Provides accurate, actionable insight enabling informed, timely, non-HiPPO decision making
  • Facilitates multi-jurisdictional, multi-currency reporting across multiple legal entities and scenarios
  • Assesses impact over a comprehensive set of risk, treasury, finance and capital functions
  • Covers mandates from multiple key regulators (and legislators) – EBA, FSA, US Fed and APRA
  • Facilitates proactive projection and comparison of capital figures against multiple scenarios
  • Lends consistency to the capital planning process by projecting profit and loss, income, balance sheet and capital figures
  • Has the flexibility to perform and manage change when needed
  • Enables business users to easily and flexibly engage in the process
  • Is scalable as frequency of information disclosure and degree of detail involved increases
analytical transformation in financial services
Analytical Transformation in Financial Services
  • Large multi-national bank
  • Had recently acquired another large institution
  • Government takes stake in the bank as a result of recent financial crisis
  • Customer Example

DEMAND

STRATEGY

  • Unification of their risk and finance processes to gain greater transparency and consistency within the bank
  • Need to present a coherent picture to the regulators across its risk & finance numbers
  • Must reduce the financial close and regulatory reporting process from 20 days to 5 days
  • Break down the silos between risk, finance, accounting and compliance
  • Leverage an single platform capable of running large volume financial processes in a fraction of the time previously required
  • An improved data architecture to help bring consistency between financial close and management reporting processes
  • An automated means of reconciling outputs to the general ledger
analytical transformation in financial services1
Analytical Transformation in Financial Services
  • Large financial institution in North America
  • CRO lacking unified view of the bank’s exposures
  • Struggling to turn around stress test results responsively
  • Customer Example

DEMAND

STRATEGY

  • An enterprise risk data Infrastructure
  • A unified view of exposures across the bank
  • Improved stress testing responsiveness
  • Able to address future risk, treasury, finance use cases
  • Trustworthy, cleaned and reconciled data
  • Common understanding of risk across LOB’s
  • Break down silos between risk, finance and compliance
  • Single platform capable of running stress tests and the supporting applications in a fraction of the time previously thought possible
  • Improved data architecture to help address cross functional data and what-if needs
  • Automated means of reconciling outputs to the general ledger
  • A common stress testing framework that ensures shocks and scenarios are consistently applied
ofsaa at openworld
OFSAA at OpenWorld
  • Monday, September 23
    • 2:30-3:30 Making Sense of the Regulatory Challenges Facing Banks Today & Tomorrow
  • Tuesday, September 24
    • 10:30-11:30 Driving Business Growth by Unlocking Rich Customer Insights
    • 5:15-6:15 Advanced Analytics for Insurance
  • Wednesday, September 25
    • 10:15-11:45 Big Data in Financial Services
    • 4:15-5:15 Use-Case Driven Approach to Using OFS Data Foundation for Data Management Needs