Companies accept that they must take strategic risks to generate superior returns, but there have been no clearly defined best-practice approaches for managing strategic risk — until recently. Balanced Scorecard co-creator Robert Kaplan and fellow HBS professor Anette Mikes have created a risk-management framework that overcomes cognitive biases and embeds effective risk-mitigation practices throughout an organization. This Key Learning Summary from Harvard Business Review explores how, by mitigating risks, the new framework turns sound risk management into a source of competitive advantage.
Risk Appetite, Governance and Corporate Strategy
Determining a financial firm's risk appetite is an important element of corporate governance and strategy setting, yet for many firms, risk appetite statements are not much more than empty platitudes. Effective risk management requires a comprehensive understanding of risk appetite throughout the organization, articulated in specific measures, processes and policies that are practical and enforceable. This white paper summarizes a webcast in which four experts discuss the growing importance of risk appetite in corporate governance, and why boards, executive management and business managers should view risk appetite as more than simple policy pronouncements made on an annual basis.
Engineering the CCAR Process
Stress testing can be viewed as either a regulatory check-the-box activity, or a tool to form a deeper understanding of the particular risks and the severities of those associated risks to an institution. In either case, the modeling, process, and reporting needs to be formally structured, methodologically robust, and efficiently scalable. This white paper discusses the critical role that forecasting plays in stress testing, the associated process management and workflow considerations, the methodological framework used, consistent application of scenarios and scenario variables, and the analysis and dissemination of results.
Overview and implications for the subprime crisis
Developed by SAS, the Comprehensive Credit Assessment Framework (CCAF), is a unique rating system that extends existing credit scoring to embrace all relevant factors and business context so that lenders can classify credit risk and decide all transactions in a more effective, transparent and forward-looking manner. CCAF's systematic segmentation approach has implications for both intervening in the mortgage crisis and preventing future financial disruption.
Organizations that have successfully implemented advanced decision management analytics have seen millions of dollars in new revenue and cost savings, including fraud mitigations. However, there are challenges. From a tidal wave of big data to a lack of proficiency with sophisticated software, some projects seem to stall out and never get up and running. In this white paper, Rex Pruitt of Capgemini talks about how to overcome roadblocks and provides compelling evidence – millions of dollars of evidence – that the effort is worth it.
Increasing investigator efficiency using network analytics
Financial transactions viewed in isolation could appear normal – but might they look quite different if you could correlate those transactions across channels, products and related entities? This paper summarizes a presentation at the 2012 Association of Certified Fraud Examiners (ACFE) Annual Conference in Orlando, FL, where Dan Barta and David Stewart of SAS called for a more holistic approach to fraud detection than the silo systems in use today -- a layered approach with controls at multiple levels across the organization, with network analysis to reveal links among entities and uncover fraudulent behavior that would otherwise go undetected.
Highlights from a panel discussion at the 2013 SAS Financial Services Executive Summit
In the age of big data, business units of banks and insurance companies can no longer toss a request over the wall to IT just in time and hope IT resources will be available. IT has to be involved early in strategic and proactive planning. At the same time, business leaders need to be more technology-aware, so they are less likely to ask for the impossible. This paper summarizes a panel discussion at the 2013 SAS Financial Services Executive Summit. Industry leaders from large banking and insurance companies shared their ideas about how IT and the business should work together and what the organization gains when both sides perform as strategic partners.
The ability to anticipate, track and control behavior of a group of accounts established during the same time period (i.e. "vintage") underpins marketing activity and risk management policy at financial institutions. This paper presents a technique that treats the components of the vintage as a set of predictions and forecasts from a cross-vintage data stream. This methodology includes a variety of analytical techniques, including time series analysis, dynamic segmentation and clustering, vintage "profiling" and forecast reconciliation. An integrated approach to vintage curve modeling unifies internal bank drivers, external economic factors and past performance into one cohesive strategy – free from internal biases and more closely aligned with market reality. This methodology can serve to provide critical insight that supplements an institution's sales and operations planning process.
Better answers faster through analytic technologies
What if your business could run an analytical process in 90 seconds instead of 176 hours? That's what happened to one company when it switched from using existing hardware and processing paradigms to using in-memory processing with high-performance analytics from SAS and Teradata. This paper shares insights from a webinar that includes a demo of in-memory analytics and case studies from key industries. Learn how this technology can help you solve brand new problems – and solve existing problems faster and more accurately.
How to optimize and better manage the shortcomings of this new risk type
Unlike any other software tool, spreadsheet programs have found their way into everyday reporting and quick calculations. Because of this popularity, there is frequent talk of overuse and even serious risks posed by spreadsheets. However, spreadsheets are insufficient for regulatory reporting and risk management. This paper explains the risks posed by spreadsheet reliance, proposes the optimum use for spreadsheets as part of an integrated data framework and discusses the role of SAS Business Intelligence software as a risk management solution.
Gaining Greater Flexibility and Efficiency with High-Performance Analytics
The limitations of prior stress testing frameworks, and the unprecedented adverse impact of the financial crisis, have highlighted the need for a new comprehensive stress testing framework that will allow organizations to aggregate information across the firm and to assess vulnerability to interrelated events across all risk and asset types. This white paper shows how high-performance analytics from SAS can address many of the past difficulties that firms experienced with firmwide stress testing and provide a flexible infrastructure that lets organizations adapt to future requirements as they evolve.
Investing in analytics to identify and manage risk can help improve your firm's portfolio. Learn how in this Argyle Conversations paper, produced by Argyle Executive Forum and featuring Tom Kimner, Head of the Americas Risk Practice at SAS. Kimner shares this thoughts on how financial services risk managers can better understand the potential impacts of various portfolio management choices, changes in risk management practices over the years and more.
This Argyle Conversations paper features an interview with Tracy Hackett, Vice President of Marketing at RBC, on how this winning bank continues to flourish. Learn how RBC is keeping its brand relevant, using analytics to shape its marketing strategy, migrating to digital channels, and continuing its innovative approach to business to stay on top.
This collection of articles, which originally appeared in Wall Street & Technology
(WS&T), explores how the global financial crisis and resulting regulatory scrutiny have changed the capital markets landscape, including how companies look at data management. These pieces were featured in the January 2013 edition and include:
- The thoughts of WS&T senior editor Melanie Rodier on the reasons data management is getting a "top-to-bottom makeover."
- Larry Tabb of the Tabb Group, and his take on post-financial crisis data management.
- David Wallace, Global Financial Services Marketing Manager at SAS, who writes about the benefits of pairing event stream processing (ESP) with high-performance analytics. Wallace also explains how real-time transparency is revolutionizing data management.
Maintaining liquid asset portfolios involves a high carry cost and is mandatory by law for most financial institutions. Taking this into account, a financial institution's aim is to manage a liquid asset portfolio in an optimal way, such that it keeps the minimum required liquid assets to comply with regulations. This paper proposes a multistage dynamic stochastic programming model for liquid asset portfolio management that allows for portfolio rebalancing decisions over a multiperiod horizon, as well as for flexible risk management decisions, such as reinvesting coupons, at intermediate time steps.
Making the case for integrating fraud and anti-money laundering processes
The financial services industry has traditionally viewed anti-money laundering (AML) compliance and fraud detection and prevention as separate disciplines with different missions – one focused on avoiding fines and the other on averting losses. Yet there are natural synergies between these areas and compelling benefits to be gained from integrating them. This white paper describes the limitations of traditional, siloed approaches to managing financial crimes – and the five key capabilities an integrated fraud and AML platform should offer.
Creating a holistic GRC view for early warning
This paper offers a case study that illustrates the importance of integrating the elements of GRC using a detailed example involving key indicators covering performance, risk and controls. The case study will focus governance-related business pains, their causes and how an enterprise GRC solution addresses them.
How High-Performance Analytics Tackle Big Data Challenges in Banking
The banking sector routinely manages massive amounts of data, ranging from financial transactions to customer, operational and regulatory data. All this data means big challenges – but also big opportunities – for the industry. Using high-performance analytics, banks can turn their big data into pertinent new business insights that guide faster, better decisions. As a result, banks can successfully manage risk, retain profitable customers, improve operational efficiency and differentiate themselves in the marketplace for competitive advantage.
Insights on turning big data into competitive advantage
This collection of articles, which originally appeared in Bank Systems & Technology's special digital publication Big Data = Big Gains, provides insight into the promise that big data holds for an industry still recovering from the turmoil of the financial crisis, and how banks can turn that promise into better and more profitable insight into customers, channels and risks.
This white paper, produced in partnership with the Global Association of Risk Professionals (GARP), reveals what the Basel principles will mean for banks' day-to-day operations and some of the biggest obstacles to implementing them. Topics include the delivery of aggregated risk data to users with very different needs, difficulties in normalizing data and persistent challenges in systems integration.
BCBS 239 requires that banks make correct, complete, consistent information available to decision makers in ways that meet their individual needs. Achieving compliance will require significant investment and changes in processes, organizational structure, and technology. The good news is, these investments will pay for themselves by enabling major advantages for banks, not just the national economy. This paper explores how forward-looking finance executives are using high-performance technologies to create fundamentally superior, compliant risk reporting processes – and ultimately help executives realize the goal of sustainable profitability.
Challenges to and opportunities for rebuilding trust
During the turmoil of the global financial crisis, several risk management system weaknesses that had developed in relatively benign market environments became apparent, particularly in the area of credit risk management. Going forward, a successful risk management system will allow for interdependencies among credit risk, liquidity risk and market risk, and will contrast various quantitative analyses with qualitative considerations. Only an integrated approach has any chance of giving a reliable picture of the upside and downside of a bank's overall portfolio. With this perspective in mind, this paper will focus on the credit risk management portion of an integrated enterprise risk management system.
Meeting the Goal of an Enterprise Risk Management Platform
Data management is a critical component of any enterprise risk management (ERM) system. A bank's approach to data management should be holistic and unified, with a platform that is scalable, open and capable of supporting the needs of multiple risk management functions. This white paper discusses the various components required for successful ERM and explores their cumulative benefits as part of a unified structure.
Meeting the goal of an enterprise risk management platform
Along with data management and credit risk, reporting rounds out a complete enterprise risk management (ERM) strategy. A bank's reporting structure allows banks to monitor and adjust for risks by seamlessly sharing data while freeing up the IT department from day-to-day management of the process. This paper provides a very detailed overview of the best practices of a robust reporting framework as part of a bank's ERM strategy.
SAS® Risk Management for Banking
The recent turbulence in financial markets has made risk management an increasingly critical part of the decision-making process in financial institutions. An integrated approach to risk management is crucial for enabling organizations to consolidate exposures, measure risk and perform stress tests across all lines of business. This white paper discusses in depth the ability of SAS Risk Management for Banking to provide integrated risk management capabilities across your entire enterprise.
Understanding customers, global economies and human welfare with analytics
Everyone's talking about big data – getting our arms around it and putting it to work for us. This paper summarizes a panel discussion at the 2012 SAS Financial Services Executive Summit where industry leaders shared their ideas about big data and what their organizations are doing with it. Aditya Bhasin from Bank of America talked about how to extract more value from the data you already have, even if it's just a fraction of what's out there. Robert Kirkpatrick, who leads the UN Global Pulse initiative, talked about how data can help us better understand global economies and human welfare. Charles Thomas, a market research and analytics executive at USAA, described how his company is navigating the shift to more real-time and predictive analysis.
A SAS Best Practices Paper
This paper illlustrates how Credit Scoring for SAS Enterprise Miner software is used to build credit scoring models for the retail credit industry. It discusses the benefits of performing credit scoring and the advantages of building credit scoring models in-house using SAS Enterprise Miner. It goes on to discuss the advantages and disadvantages of three important model types: the scorecard, the decision tree and the neural network. Finally, it presents a case study where an application scoring model is built with SAS Enterprise Miner, beginning with reading the development sample, through classing and selecting characteristics, fitting a regression model, calculating score points, assessing scorecard quality (in comparison to a decision tree model built on the same sample) and going through a reject inference process to arrive at a model for scoring the new customer applicant population.
How Big Data and Advanced Analytics Help Investigators Proactively Fight Fraud and Money Laundering
Law enforcement and investigators have access to big data and advanced analytics that allow them to look at previous patterns of fraud to accurately predict current and future fraudulent activity and determine relationships between conspirators. In this conclusions paper, Dennis M. Lormel, President and CEO of DML Associates LLC, provides perspective on how fraudsters view the world, as well as the latest criminal trends. Dan Barta, Industry Consultant for Enterprise Fraud Strategy at SAS, discusses how big data, advanced analytics and associated technologies are helping law enforcement and regulatory agencies become more proactive in tracking down fraudsters.
As today's regulatory and financial environments evolve in the banking sector, efficient capital management has assumed a status of paramount significance. This paper illustrates an approach to managing capital that will enable banks to proactively steer the vital components of strategic plans – product mix evolution, revenue growth and risk appetite. It postulates that banks must manage strategic planning life cycles in tandem with risk appetite and forward capital position. Further, it illustrates ways to make capital management – that is, forward-looking planning and short- to midterm utilization – more efficient and more oriented to risk-adjusted performance measures.
Analytic, convergent tools help officers stuck in compliance 'quicksand'
A podcast hosted by the Association of Certified Financial Crimes Specialists (ACFCS) and SAS explained the key compliance threats institutions face, such as keeping pace with tighter scrutiny from regulators and emerging risks from new payment technologies. This paper explains how converging technologies and processes across departments can help mitigate those risks and improve compliance results.
A Regulatory and Economic Perspective
Every bank conducts stress testing as part of compliance. But increasingly, savvy executives are taking stress testing enterprisewide and using it as a powerful management tool for everything from financial planning to accounting. With the right data and analytical software, you can quickly simulate different environmental conditions, or risk scenarios, to understand their effect on the financial position of your bank. Armed with this insight, you can make informed decisions and implement timely countermeasures that will protect the solvency of your organization – even during periods of crisis. As explored in this paper, achieving this goal requires that banks standardize their processes and methods and centrally manage data and systems.
Insights from a panel discussion at the inaugural SAS Financial Services Executive Summit
How does a financial services organization go about moving to a data-driven, customer-centric business model, and what can realistically be done to start moving in that direction today? That was the question of the day at the inaugural SAS Financial Services Executive Summit. This paper provides a summary of a panel discussion at the event in which professionals from the banking, insurance and retail industries shared their ideas about the critical role of analytics in making the shift to a customer focus.
Financial institutions face many challenges due to recent Basel III-related changes in the area of counterparty exposure measurement and management. This white paper puts in perspective the counterparty exposure management processes that banks need to implement to address the new Basel III regulations. It also illustrates how SAS has responded to Basel III-related challenges through an integrated risk offering – SAS® Risk Management for Banking – that can meet banks' immediate requirements while providing a framework to support future business needs.
Online banking, mobile banking and card fraud
Understanding current trends in electronic fraud, identifying key risk areas and incorporating state of the art solutions to combat fraud will help financial institutions provide a risk free banking environment and boost customer satisfaction. This whitepaper, which presents the results of a study conducted by Javelin Research Group on behalf of SAS, delves into the nuances of overall electronic banking fraud, the mobile channel as an emerging area for electronic fraud and current software, programs and processes in place to stop card fraud. It concludes with recommendations on future fraud prevention strategies.
A Proactive Solution for Mitigating Regulatory and Reputation Risk
Are you still relying on traditional or homegrown customer due diligence (CDD) systems to stay in compliance with the Bank Secrecy Act and USA PATRIOT Act? This paper will help you evaluate your organization's CDD processes and technology relative to current industry risks and regulatory requirements. In addition, you'll learn how automated analytical tools can help you accurately segment and identify customers by risk level – continuously and accurately – so you can focus limited investigative resources where you need them the most. Given recently enacted compliance laws, there's never been a better time to reexamine your current CDD processes and enabling technology.
Using Analytics for Growth and Retention
Every bank would like to have a rich well of descriptive and predictive insight about customers, but big obstacles stand in the way. In most banks, customer information is scattered across disparate databases owned by different lines of business. The insights hidden in those databases should be revealed, shared and published across the institution, but at the same time, data must be kept strictly private and protected. Amid these realities, how do you get customer data under control? How do you transform it from information into insight? What do financial institutions gain from customer analytics, and how should it be implemented? These were the topics addressed by experts representing three different perspectives in a recent Webcast. This paper provides a summary of that Webcast.
A review of the key industry threats and responses ahead
The rise of the information society has provided a wealth of opportunities for organizations to enhance services to save time, money and effort. But there is a darker side. Cybercriminals are finding new ways to exploit weaknesses and working to develop more sophisticated attacks – or finding high-tech reinventions of old tricks. The cost to consumers and to society is growing while a lack of international cooperation allows these crimes to multiply. Though cybercrime transcends industries, financial institutions often lead the way because they are often first to experience new threats. Based on a survey of 250 banking executives, along with in-depth expert interviews, this report looks at cyber security challenges and opportunities as they relate to banks.
Effective risk management and its dependence on accurate, high-quality data
There's a growing recognition that data is not just a technology issue, but a critical corporate asset that must be driven by the needs of the business. As such, it has become a key topic for discussion among both the executive and non-executive board, and it plays a key role in effective enterprise risk management. This white paper discusses how, by asking the right questions at the right time, understanding the strengths and weaknesses of their institutions' data, and helping to prioritize investments and initiatives, boards can play a vital role in raising the quality of data and, by extension, their own decision making.
Banks and regulators are all about data quality these days – and for good reason. Without meaningful data quality management, big data only leads to faster analysis of "data debris" and inaccurate risk insights. From a risk perspective, high-quality data is essential to implementing effective risk strategies and ensuring compliance. BCBS 239 is just one of many regulatory communications with requirements predicated upon banks having quality data. This paper explains how effective data quality management should be considered a basic requirement for modern-day bank management. It focuses on five best practices for improving data quality that are derived from successful SAS projects within the financial services industry.
SAS® Anti-Money Laundering enables financial institutions to meet expanded requirements for due diligence
Financial institutions are finding it necessary to strengthen their anti-money laundering (AML) platforms to stem the tide of illicit financial transactions and meet new regulatory mandates. For enterprises with moderate to high risk exposures, this calls for a rigorous automated system based on dynamic risk assessment. This white paper discusses how SAS Anti-Money Laundering enables institutions to create an enterprisewide view of customer relationships and risks, monitor activity using multiple detection methods, adapt that monitoring as appropriate for each customer's risk classification, investigate and document suspicious cases, and produce required regulatory reports – all within an integrated solution built on award-winning SAS data management and analytic capabilities.
Moving beyond current operating models
Traditional modeling and tuning of rules-based systems – while effective at detecting known and recurring patterns of fraud – often return exceptionally high numbers of false positive alerts, mistakenly flag legitimate behaviors as suspicious, and more importantly, are exploited by fraudsters as they learn the rules and how to circumvent them. This white paper summarizes a candid discussion with fraud experts from SAS and Bank of America about what it takes to develop more customer-centric fraud management – factoring in anomaly detection, customer baseline scoring and customer-prescribed risk appetites – to help identify suspicious transactions and networks before the money leaves your premises.
Insights from the BAI Mass Affluent Executive Roundtable
This paper captures the comments of senior bank executives from the top 50 US banks on best practices in marketing to the mass affluent segment. Rich in strategies for targeting this lucrative segment – which comprises some 40 million high-net-worth Americans – the paper explores the challenges and opportunities in attracting and retaining this diverse group of microsegments. It also covers how data management and analytics will figure prominently in whether banks can change and adapt to this next level of personalized service.
A structured framework and approach for holistic management of fraud, waste, abuse and improper payments to support financial services, government and health care
Enterprise case management is garnering much attention for its potential to combine intelligence from disparate systems into a single repository to more effectively prevent losses, meet regulatory compliance mandates and reduce costs. This white paper discusses enterprise case management and explores how SAS Enterprise Case Management significantly reduces the time and effort of investigating fraud and resolving customer service cases.
Helping Banks Find Long-Term Success
As banks increasingly look to best-of-breed, third-party solutions for their risk management and independent derivatives valuation needs, SAS and FINCAD have partnered to offer a joint solution to address these needs. Following this best-of-breed approach can save a bank significant time and costs over developing the systems in-house. This white paper discusses the joint solution from SAS and FINCAD – an enterprise risk management system with independent derivatives valuations – and how the solution enables banks to develop effective risk policies that are designed to continuously manage a firm's risk-and-return profile and the capital required for long-term success.
Analytically powered best practices for detecting, preventing and investigating fraud in financial institutions
Organizations that respond to regulatory pressures by simply documenting existing fraud management practices are selling themselves short. This is the opportunity to turn the tide on fraud, fighting back with powerful analytics, holistic intelligence and integrated case management. This white paper shows why it's so important to take an integrated, enterprisewide approach to fraud management that spans all contact channels and account types. With a best-practice approach encompassing data analysis and alert generation, alert management, and case management, businesses can avoid fraud, stop losses and save significant amounts of time and money.
Deriving Business Benefits from Risk-Based Capital Adequacy Regulations
Regulatory agencies in several jurisdictions have sought to augment regulatory requirements put forth by the Basel Committee on Banking Supervision (BCBS) following the financial crisis by mandating that banks define a forward-looking capital plan that incorporates stress scenarios. The new regulations may force banks to redesign their risk modeling, data infrastructure and technology components, as well as more closely integrate their risk and finance departments – which historically have been managed separately. This white paper discusses how banks can successfully cope with the growing regulatory burden by adopting solutions that not only meet current regulatory requirements, but are also flexible enough to address future requirements. The paper also explains how banks that demonstrate a better ability to measure and manage risk can derive business benefits from these regulations and emerge as winners.
Insights on a new direction for risk management by Myron S. Scholes, PhD and Nobel Laureate, and Tom Kimner, Head of Americas Risk Practice at SAS
As a result of the recent market shocks, banks, capital markets firms and asset managers are rethinking certain issues and focusing on: 1) How to integrate not only risk and reward tradeoffs using portfolio theory, but also how to plan for market shocks; 2) The resulting impact of these shocks on the business and its divisions. Leading financial entities are linking their portfolio risk with the return on capital and integrating market liquidity into their analyses in an attempt to gain a more complete view of risk and return. As a result, optimization of capital deployed – rather than just a single view of risk exposures – has become the new role of risk management. This white paper proposes a new framework for optimizing risk management and discusses the technology needed to establish a high-performance computing environment for risk management.
Establishing the Environment
Stress testing is an important tool in a holistic risk management regime, and its benefits go a long way to ensure that institutions are adequately prepared and capitalized to absorb severe shocks. A stress testing framework is an investment in institutional longevity, preparing the firm to weather storms, improve risk-adjusted profitability and efficiently deploy its capital. Firms that rise to this challenge will reap the rewards. This paper examines the components needed for establishing a stress testing environment.
Using text analysis and predictive modeling to improve promoter scores
Two assets significantly influence success or failure of a company. Those are customers and their continued patronage, and employees and their knowledge (as well as their work productivity). This paper describes how to evaluate the likelihood of continued customer patronage versus the risk of losing it. It also acknowledges corresponding loyalty, measured in the form of promoter scores. The paper proposes a strategic analytic roadmap for how SAS enables you to use promoter score survey results to identify customer migration value. The strategic value your organization gains from such analyses enables you not only to understand why customers are or are not likely to promote your product or service – but also their likelihood to do so in the future.
A new era in liquidity risk management
The global financial crisis highlighted major shortcomings in liquidity risk management. As a result, liquidity risk management has entered a new era aimed at ensuring that future liquidity shortages will be less severe and that when shortages do occur, firms will be in a better position to cope. This white paper outlines the failings of liquidity risk management and summarizes the solutions recommended by the industry and the official sector. It then goes on to explain how those solutions can be developed and implemented using the full power of business analytics.
From measurement to management
The increasing complexity of banking products and stronger reliance on capital markets has helped put a spotlight on the importance of financing liquidity risk management. Liquidity risk management is of great interest to regulators as well, because a liquidity shortfall at a single significant institution can have significant system-wide effects. This white paper describes a framework for both the measurement and management of liquidity risk, covering the following areas: measurement of liquidity risk; stress-testing of cash flows; managing the optimal liquidity hedging portfolio; planning for liquidity execution; allocation and pricing of liquidity risk.
This paper discusses the challenges inherent in funds transfer pricing and risk-adjusted performance measurement, as well as how SAS® Risk Management for Banking meets the immediate requirements banks are looking for while providing a framework to support future business needs.
Turning Customer Value into Competitive Advantage in Retail Banking
This white paper was designed to present new ideas for measuring and acting on customer value in retail banking. Written by SAS and Peppers & Rogers Group, it presents practical, real-world advice on how retail banks can increase profitability from customer value insight without a business model overhaul. Specifically, the paper provides guidance to help you refocus strategy, retool the mechanics of measurement and realign the organization around customers.
Leveraging and Capitalizing on High Performance Technology
Top-tier investment banks have taken advantage of recent technology advances -- e.g., parallel computing, in-memory storage and smart algorithms -- to capitalize on the advantages of speed in trading. As these technologies are becoming increasingly available, their application to additional areas of bank steering is essential for banks looking to gain the competitive edge needed to stay ahead in what some call a mature market. This paper -- which was developed jointly by The Boston Consulting Group and SAS -- examines the potential of high-performance bank steering applied across banks and the organizational, governance and technological requirements required to make that possible.
Linking the front and middle offices
Anticipated regulatory changes will demand more transparency from capital markets firms. They can deliver this transparency and accountability more readily and gain a competitive advantage by creating a model and scenario library linking the front office, middle office and risk management teams. This paper outlines an approach for creating a common model, security and scenario library for modeling structured, fixed-income securities and equities for use by front office, middle office and risk management teams.
Using Analytics to Lock Up the Fraudsters
Despite improved security, fraud is still a major concern in the banking industry. This is due to elaborate cybercrimes like international money mule operations as well as the use of new mobile devices like smartphones. The growth in cybercrime – encompassing mobile, online and ACH transactions – puts analytics front and center at helping banks stay ahead of fraudsters. This paper illustrates why using multiple analytical approaches across all organizational transactions helps banks achieve better monitoring of fraudulent activities and more accurate customer behavior profiles. As a result, banks can keep customers safe from financial harm while protecting their own reputations.
Increasing your information turnaround speed exponentially while achieving vastly superior data integrity and accurate results
Until now, most companies have found it difficult to deliver the reliable, accurate and near real-time insight required to support critical decisions. This paper explains how you can use in-database analytics to not only accelerate your time to insight, but also gain greater confidence in the accuracy of your decisions and maintain the security and integrity of your data.
A selection of articles by thought leaders that appeared in previously published material from Financial Times Business Enterprises Ltd.
No industry has faced greater changes and challenges than the financial services industry – and no other industry has greater opportunity, either. The articles in this collection address both the opportunities and obstacles that the financial services industry may encounter in the coming months and years as the banking industry looks to embed itself firmly in the digital age, with all the possibilities and perils that it brings.
The next challenge to better managing liquidity and capital
The integration of risk and finance as part of the budgeting process is not a matter of "if it will be required," but "when the regulators will mandate it" as part of their ongoing review process. This paper describes a bank's typical budgeting and planning process and offers some insights into how the risk and finance functions can be integrated into this process.
In the wake of the financial crisis, forward-looking banks are trying to make the risk function a more integral element in everyday business decisions. This paper, produced in partnership with the Global Association of Risk Professionals (GARP) following a webinar on the same topic, examines how banks are using risk analytics to create a competitive advantage.
A step beyond Basel III compliance
National banking authorities around the world are adopting the new Basel III framework with the goals to eliminate systemic liquidity risk and to promote greater transparency of risk management practices. These changes will be a challenge to banks that try to improve their asset and capital returns. This white paper examines how SAS High-Performance Risk can help firms make quick, well-informed decisions about the firm's risk exposure.
For years, the possibility that a bank would be unable to fully comply with its payment obligations was regarded as almost inconceivable. But the financial crisis of 2007 and 2008 revealed just how vulnerable banks were. Regulators have responded with new regulations, but it's incumbent upon banks to manage liquidity more effectively. What does better liquidity risk management look like? And how can banks accomplish it? As explored in this paper, what's needed are modern information systems for simulating and stress testing bank liquidity. These systems can help banks monitor and enable early detection of liquidity risks, as well as accurately determine sufficient liquidity at the optimal cost to the business.
Lately, liquidity risk has received serious attention from regulators, banks and investors alike. And rightly so, as everyone witnessed how an exogenous credit crisis compounds itself into a major liquidity crisis (or funding problem), propagating very quickly through the global financial markets, leading to insolvency of major financial institutions. This paper discusses challenges faced by financial institutions in the area of liquidity risk measurement and management as well as the SAS response to these challenges – an integrated risk solution that can meet the immediate requirements banks have, while providing a framework to support future business needs.
The changing role of the CMO in the financial services industry
According to a report by the Economist Intelligence Unit, financial CMOs have been slow to adopt the customer-centric and digital marketing strategies necessary to attract and keep millennial consumers. Given that these young people (late teens to early 30s) are poised to be the most educated, diverse and influential consumers ever, it’s vital that financial service CMOs understand how to develop lasting relationships. Read this paper to learn three sound ways that financial services CMOs can better engage with the millennial generation and build long-term loyalty.
A Harvard Business Review Insight Center Report
This collection of expert articles addresses the question: How do people behave around risk? The answer is that our response to risk is typically a weak one. Read this report to learn how to rise above the crowd and meet risk head on with more effective risk assessment and management approaches.
Achieving financial success with embedded groupwide SAS® Risk Management
Current economic conditions heighten the need for financial services firms to accurately gauge required levels of regulatory compliance and economic capital to support business strategy and risk appetite. More regulations are on the way, demanding transparency, accurate information about company operations, robust and comprehensive risk management, regulatory compliance and efficient governance. What does this mean for many organizations? This paper takes a step back to examine how all components of a successful company must work in an integrated manner in order to produce the best results, and how SAS approaches governance, risk, compliance and performance management issues by providing a comprehensive framework for analyzing and managing risks in the context of corporate strategy and performance.
How banks should leverage technology to capitalize on regulatory change
A wave of regulatory reform is forcing banks to revisit the technology used to measure and manage risk. This presents an opportunity to develop IT capabilities that provide a more nuanced view of how and where banks utilize their financial resources. This paper, written jointly by SAS and Boston Consulting Group, examines this issue in the context of a framework and process designed to help banks improve their risk-IT architectures.
Measuring return on investment in risk systems
Faced with a daunting combination of challenges following the worldwide economic crisis, financial institutions are being forced to rethink their entire approach to their business model, and as regulators place financial institutions under increasingly intense scrutiny, investments in risk that go beyond the mandatory may generate quantifiable benefits. This paper examines how better risk systems will not only help an institution manage risk more effectively, but also make the institution more productive and efficient, enabling them to cut down on manual workarounds, reduce intensiveness of resource usage, improve timeliness and enable better collaboration and communication across organizational boundaries.
A first order approximation
This paper attempts to answer a series of practical questions that typically confront CROs in small institutional settings, including: How do I quantify the benefits of making an investment (say a technology investment) to reduce the current amount of capital assigned to operational risk? How do I provide greater internal and external transparency around the cost of capital attributed to operational risk? Further, how do I explain these benefits to the management committee or to a board of directors in order to obtain funding for that investment?
Find better ways to understand your least-used yet most-valuable business resource: your current customers
Recently, the focus in banks has shifted from mergers and acquisitions to organic growth – attracting and retaining good customers. This white paper describes how to apply customer value to the retail banking business model as a continuous loop of insight, action, assessment and learning for continuous improvement. It also proves the advantage of a more interactive view of customer value.
Enterprise Fraud Strategy - Vision and Reality
The rapid expansion of new products and new channels for customer access has opened up new opportunities to satisfy customer needs. However, this expansion has also opened up the opportunity for fraud that cuts across an institution’s product lines, channels and even geographic regions, as fraud rings attempt to exploit any vulnerabilities they can find. As a result, financial institutions of all sizes are discovering that they need to rethink their approach to managing fraud. This white paper by the Fraud Management Institute discusses both the vision of enterprise fraud strategy that many institutions find so attractive, and the reality they face in implementing an enterprisewide strategy effectively.
Social Network Analysis – Connecting the Dots
As an emerging technology, social network analysis (SNA) offers capabilities that often surpass other analytical solutions in their ability to integrate different pieces of data to form a more complete picture of emerging fraud threats. This research paper, which was written by the Fraud Management Institute, discusses SNA – what it is, what makes it an attractive option and the challenges that go with SNA deployment.
How High-Performance Technologies Are Enabling Major Advances in Risk Management
For years, banks have generally accepted having risk analyses available several days after events occur. But today, financial institutions face challenges such as higher volatility, increasing interdependence of markets, growing margin pressure and increasingly complex regulatory requirements. So out of sheer economic self-interest, they need to rethink – and industrialize – how they create and process risk-related knowledge. This paper discusses how real-time risk management is both technically possible and more cost effective than ever to implement thanks to huge advances in data processing performance and efficiency. High-performance technologies are enabling real-time data integration, data quality processes, reporting, evaluations, analyses and decisions on demand – all capabilities that are critical to effective risk management.
Next steps for risk management in retail banking
In May 2010, the Economist Intelligence Unit published Rebuilding trust: Next steps for risk management in financial services. This follow-on supplement to the main report examines the steps that retail banks are taking to reinforce their risk management capabilities in response to the global financial crisis.
Next steps for risk management in investment banking
In May 2010, the Economist Intelligence Unit published Rebuilding trust: Next steps for risk management in financial services. This follow-on supplement to the main report examines the steps that investment banks are taking to reinforce their risk management capabilities in response to the global financial crisis.
SAS Anti-Money Laundering: An integrated framework for risk scoring, alert generation, investigation and reporting
Financial institutions must strengthen their anti-money laundering programs to identify and report suspicious activity, meet new regulatory mandates and manage compliance risk. Read this white paper to learn how SAS Anti-Money Laundering can help you detect unknown behavior patterns, gain a clearer view into transactions and report suspicious activity.
How to meet the growing demands of financial regulation and gain competitive advantage
The regulatory landscape for financial institutions is changing more rapidly than ever before. Governments and regulatory bodies are introducing new laws and rules, and increasing the burden of compliance. This white paper summarizes the nature and scale of these regulatory shifts, shows what firms have to do to comply with new regulations, and discusses the role that business intelligence and analytics have to play.
This white paper presents the linear and copula model approaches to the calculation of risk aggregations and economic capital. It also discusses use of risk contributions as a basis for allocating economic capital and demonstrates how to integrate economic capital into risk-adjusted performance.
The banking systems that deliver risk information often operate in silos. Despite this built-in system isolation, the data requirements for risk measurement and reporting processes across different types of risk measures overlap significantly. And the time required to identify, clean, transform and load this data into each individual solution's data mart is substantial. SAS helps by providing a single source of all information used to create your risk data warehouse – an approach that brings major benefits not only to each of your risk projects, but to your bank as a whole. Learn more about how SAS can help you operate effectively at an enterprise risk management level and improve analytical processes that need data enrichment. All while lowering the overall cost of providing data to banking activities that rely on analytics.
The role of business analytics in transforming banking
Executives charged with the task of putting banking on a safer, more promising footing in the wake of a global economic slowdown need to be armed with trustworthy, complete facts and analysis. This paper looks at how adopting a business analytics framework enables decisions to be based on true knowledge and predictive insight – adjusted for known risks, across the institution's business units, functional areas and channels.
There are some factors that require careful consideration before the development and implementation of a risk-based pricing framework. This paper outlines those factors and provides a quick methodology to begin instantiating risk-based pricing when other processes, such as an economic capital framework, have not yet been implemented.
An industry best practice for estimating the market risk of trading operations involves projecting profit-and-loss distributions of portfolios of financial instruments over short time horizons and then summarizing that information into single numbers, such as value at risk (VaR) and expected shortfall. Easy to understand and conceptually straightforward, VaR has long been an industry standard for estimating market risk. The means by which it is calculated and used in practice to manage risk, however, present a number of modeling, data management and reporting challenges. This paper addresses ways in which SAS can help clients overcome these challenges to better measure and manage their market risk.
You’ve probably purchased software and had the very reasonable expectation that you could load it onto your existing platform and be productive in a very short time. But then you discovered that you had to configure files or perform some other time-consuming, resource-draining procedures first. This white paper examines how the SAS can help you rapidly move through the implementation phase to get a strong return on your investment in SAS Asset and Liability Management software.
Accountability of business leaders in financial services
The Economist Intelligence Unit conducted a global survey, which was sponsored by SAS, to explore perceptions of accountability among C-level executives, primarily in the banking and insurance industries. This report summarizes the findings of that survey. In particular, the report examines the degree to which business leaders in financial services feel accountable to society compared with other stakeholders. It also evaluates the impact stakeholders have on decision-making, especially when it comes to risk management.
As the recent global financial crisis revealed, the financial industry needs better, more comprehensive stress testing. An integral part of a firm's risk management approach, stress tests can give a clearer view about dangerous scenarios often described as a "perfect storm" or "black swan" event. They can also be used as part of branding and marketing. This white paper gives insight into different types of stress tests, and illustrates the importance of integrating stress test measures with value at risk (VaR) measures. It also describes risk architecture and data management considerations.
Why helping communities and saving the planet is good for business
The banking sector has a significant role to play in our planet's future sustainability. Customers are saying that it's the right thing to do, suppliers are coming on-board and staff are engaged. Shareholders, too, have recently added their voice, understanding that the lack of a sustainability strategy poses a very real threat to reputational risk and hence shareholder value. This paper highlights the challenges for sustainable banking -- that is, building a future that integrates consumer, supplier and shareholder demands while decreasing the impact on the worlds resources. It also outlines a strategic approach to seizing the opportunities and realizing the benefits that have been gained and are anticipated as the strategy unfolds.
The role of the board in setting, implementing and monitoring risk appetite
Most companies recognize that effective risk management depends on developing a clearly articulated statement of risk appetite and a robust framework to cascade this through the organization. This white paper, based on research conducted by Longitude Research, explores how having a thorough understanding of the amount and types of risk that the organization is willing to take in pursuit of a desired level of return provides boards and senior management with clear direction and ensures alignment of expectations across a broad range of key internal and external stakeholders.
And its impact on technology and operations
In 2014, the first regulatory requirements of the Foreign Account Tax Compliance Act (FATCA) will require financial institutions across the world to comply with new reporting and withholding requirements. This necessitates new operational systems designed to identify US tax-liable entities at the point of on-boarding and a holistic view of existing client and account bases to run the appropriate FATCA scoring of a full client relationship. This white paper takes a look at both the immediate and long-term implications of FATCA and outlines how SAS can help FFIs prepare for the challenges ahead.
A BAI Research Study
Throw out the rule book and start over with a clean slate. The economy has slowed, regulations have increased and the way customers choose and interact with financial institutions changes quickly. Banks must go to the drawing board and genuinely re-engage with their customers. This paper reports on a comprehensive BAI study, providing an in depth overview of how to understand and engage with five valuable client segments. It includes customers' opinions on financial institutions, their level of satisfaction with their primary bank and details what financial institutions need to know about these key customer segments in order to engage with them effectively.
A report from the Economist Intelligence Unit
Financial services firms already use customer data to cross-sell products and services, build loyalty, detect fraud and manage risk. The next step is a shift toward relationship marketing. This is becoming even more critical as digital financial transactions are integrated into daily activities and customers visit bank branches less often. The Promise of Real-Time Data by the Economist Intelligence Unit explores how analytics are enabling banks to obtain a 360-degree view of their customers and respond to their needs even as they migrate across channels.
Examining Current Preparedness for Future Demands
An exclusive InformationWeek Financial Services survey performed in July 2010 and sponsored by SAS discovered that the majority of financial firms surveyed aren’t prepared for continued exponential data growth and ever-shrinking latency for complex analytic tasks. The report also looks at financial services firms’ attitudes and approaches to various types of risk, their current analytics platform and infrastructure, and their current plans for managing both risk and increasing amounts of data to meet future business goals and demands.
Tips and Techniques for Defending Your Network
Cybercrime – responsible for the loss of billions of dollars – has significantly changed the way organizations manage their data and do business. Today, hackers – also known as crackers or black hats – are using the Internet to steal people's identities, hijack networks and access sensitive data. The tools and techniques they use evolve continually. Staying ahead of this new wave of crime is no easy task. Traditional tools that promised protection have only added to the complexity by creating more data for companies to manage. To respond faster to infiltrations and potential threats, it's important to examine all your data using best-in-class analytics. Best-practice approaches to networking and information sharing can also help mitigate risk.
An excerpt from the book Credit Risk Assessment: The New Lending System for Borrowers, Lenders, and Investors
This white paper is an excerpt from the book Credit Risk Assessment: The New Lending System for Borrowers, Lenders, and Investors by Clark R. Abrahams and Mingyuan Zhang. In this paper, the authors survey various opinions concerning the causes of the current financial crisis; its impact, consequences and implications; and the role of loan underwriting, which they see as being at the core of the problem. The authors also share their ideas for a new, comprehensive and systematic approach to credit granting that combines the best of science, proven credit principles and common sense.
Building a Technology Foundation for Successful Client Differentiation
Wealth management organizations must take a data driven, analytical approach toward building trust and loyalty with high net worth clients. This white paper highlights three essential elements needed to create a foundation for successful client communications. Also, it discusses a process for implementing these elements -- resulting in strong client relationships.