Executive Vice President and Head of Risk Analytics
Building a risk-conscious culture
Danske Bank takes risk modeling out of the dark and initiates new strategic discussions about capital management
A bank’s risk and capital management are closely connected as the capital should ultimately be able to withstand any probable loss arising from its customers. Danske Bank’s work with both areas is supported by SAS® Risk Management for Banking. The philosophy is that the complex calculations must reflect the bank’s business reality and should inform the bank’s decision making.
Initially, Danske Bank chose SAS Risk Management for Banking to get a more transparent view into its data. But the solution has also given the analysts in the risk analytics department more autonomy, explains Executive Vice President Mikko Laukka, who is Head of Risk Analytics. He says that now the bank’s portfolio credit risk team can work on the platform without the help of the IT department, ensuring faster decision-making.
The solution quickly proved its worth by giving us transparent insight and management over all parts of our calculations, and it enables us to develop, change and understand the analysis behind the figures ourselves.
The solution is tailored to the risk analysts who use it every day. It gives them the tools they need to construct and test hypotheses, as well as produce the relevant key numbers and analysis for decision making. Additionally, the bank’s strategic stress tests can now be performed using the analytical platform.
“When we started working with SAS on the solution around four years ago, our aim over time was to ensure better interaction between the bank’s portfolio risk experts and the front office,” says Laukka. “The solution quickly proved its worth by giving us transparent insight and management over all parts of our calculations, and it enables us to develop, change and understand the analysis behind the figures ourselves. We wanted to get a much better understanding of how each element in a portfolio could influence the rest and how we could use this knowledge across departments.”
Calculating risk scenarios
Economic capital is computed by Danske Bank in a complex and demanding calculation using SAS Risk Management for Banking. The aim is to calculate the capital the bank must have on hand to cover 9,997 out of 10,000 scenarios with unexpected – but realistic – losses. The calculations are based on the bank’s historic data on individual, large customers and pools of small customers. For the major calculation, SAS is used. SAS Risk Management for Banking runs on SAS 9.3 on six servers, with a total 304 cores and 1024 GB RAM.
“By moving away from the ‘black box’ toward a transparent and open solution in which all dynamics can be followed and understood by our analysts, we can better understand the details and act and react quicker – and on a better foundation,” says Laukka.
A natural part of the office discussion
Gradually, the solution has evolved to become much more than a tool, giving the Risk Analytics Unit the needed insight to carry out its function with more certainty. Recently, it has grown to a much more firm element in the general risk discussions across relevant departments in Danske Bank.
“The information possibilities have become a natural part of the bank’s discussions about risk assessment,” explains Laukka. “While we in the risk department for a while have seen the advantages, it has now spread out to become a more integrated part of assessments in more general terms. It has actually created a little bit of a buzz in the office. We have even had account managers come to us for advice on how to use their capital and portfolios, so the benefits of the solution have definitely caused ripples. If we boil it down to the essentials, it is all about knowing how we’d like our portfolio to look in the long run. With this solution, we have the best basis for making that judgment. With the option to create very specific and tailored simulations, we can assist the bank by being able to get sort of a glimpse into the future.”
Relationships, dynamics and assumptions were not readily apparent to decision makers.
- A platform for stress testing and capital adequacy, and a transparent view of relationships and assumptions.
- Analysts can work without IT involvement.
- Risk calculations can be performed by one unit using an integrated approach.
- Full visibility into the entire process from data to risk measure outputs.