When it comes to credit risk management, it's all about the right hand knowing what the left hand is doing. We'll show you ways to get an institutional view.
The most recent financial crisis was driven in part by the inability of financial institutions to effectively identify and manage underlying credit risks in sophisticated investment vehicles. Within financial institutions, the risks being taken by individual lines of business may have been well understood. However, how those risks were correlated, and their cumulative impact on the organizational risk profile, were not. The lack of a portfolio view of risk is due, in part, to fragmented technology and inadequate credit risk reporting.
In order to gain a full understanding of operating results and respond effectively to changing risk dynamics, risk managers must be able to quickly assimilate significant portfolio issues and drill into relevant data as necessary. While credit risk reporting frameworks vary across institutions, the most effective frameworks adhere to a standard set of design principles. Such reporting should: