Risk-Management Software for Banks

Banks need risk-management software specifically adapted to their role.

Risk-management software for banks must address many of the same matters that risk management for other types of business must--counterparty credit risks and operational risks, for example.However, banks have unique responsibilities in the world financial system, so their risk software must be adapted to collateral operations, credit life-cycle management and the regulatory capital requirements imposed by the Basel Accords.

Collateral

For a bank's collateral operations, the right software will monitor exposure and changes in the collateralized assets' value and notify the bank's decision makers when collateral value has fallen below the contractual threshold.

Credit Life Cycle

The term "credit life cycle" refers to the fact that when a bank first enters into a relationship with a new counterparty, it is at its wariest. If a mutually satisfactory relationship develops over time, some of the safeguards may come to be unnecessary. Software that is insensitive to these developments will hurt relationships with those parties.

Basel Accords

The Basel Committee derives its name from Basel (alternative spelling, "Basle") in Switzerland.

Through the Basel Accords, central banks and regulators around the world have sought to set forth uniform capital requirements for the world's banking industry. The resultant rules about "Tier 1" and "Tier 2" capital have been incorporated into the laws of the participating nations and must be included within risk-management software.

References

• Algorithmics: Banking
• Rockall Technologies: Enterprise Collateral Management

Resources

• "Credit Risk Models and the Basel Accords"; Donald R. van Deventer and Kenji Imai; 2003