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This presentation is based on a part of an academic course on Advanced Enterprise Risk Management (Advanced ERM) titled ‘ERM Frameworks and Responses to risk’ and covers topics such as: different types of risk (ERM) frameworks, the 2007-09 Credit Crisis (including policy responses), Basel II/III and Solvency II (including summary similarities and differences), Basel II and Basel III (banks), Solvency II (European insurers) and responses to risk

Slides

1	Session 3: ERM Frameworks and Responses to risk
2	Session 3: ERM Frameworks and Responses to risk
3	There are many different Risk (ERM) frameworks
4	ERM frameworks come in various types
5	They often develop through time
6	As does thinking behind them
7	COSO: ERM - Integrated Framework
8	COSO: ERM encompasses
9	COSO: ERM components
10	COSO: ERM objectives
11	Choosing between ERM frameworks?
12	Session 3: ERM Frameworks and Responses to risk
13	The 2007-09 Credit Crisis
14	Stages 1 and 2
15	Stage 3: Counterparty mistrust
16	Stage 4: Hubris always leads to nemesis?
17	The 2007-09 Credit Crisis: Summary
18	Session 3: ERM Frameworks and Responses to risk
19	Basel II/III and Solvency II
20	Trend towards principles-based regulation
21	Current UK financial regulatory structure
22	UK FSA, PRA, FCA Principles (Handbook/Rulebook)
23	PRA’s Risk Framework
24	Basel III and Solvency II
25	Banks and insurers are also differently capitalised
26	Basel III and Solvency II: Different histories / drivers
27	Calculation of Required Pillar 1 Capital
28	Session 3: ERM Frameworks and Responses to risk
29	Basel II - Market risk
30	Basel II - Market risk (ctd)
31	Basel II - Credit risk
32	Basel II - Operational risk
33	Revisions to Basel II post crisis: overview
34	Basel III capital requirements
35	Revisions to Basel II post crisis: market risk
36	G-SIBs
37	G-SIIs
38	UK-specific response
39	(1) Turner viewed key drivers of crisis as
40	(2) Recommendations included
41	(3) On capital , accounting and liquidity
42	(4) On Narrow banks versus Investment banks
43	Differentiation linked to two main roles of money
44	Another way of viewing proposed regulatory reforms
45	(1) Enhance capital adequacy
46	(2) Ring-fence activities linked to depositor protection
47	(3) Existing investors to contribute more to bailouts
48	(4) Make resolution of failing firms easier
49	(5) Improve business behaviours
50	Session 3: ERM Frameworks and Responses to risk
51	Solvency II
52	Involves a journey
53	Solvency II - Summary drivers
54	Example of uneven capital treatment across sectors
55	Three pillars
56	Generic balance sheet structure
57	Solvency II aims to be market consistent
58	Technical Provisions
59	SCR and MCR
60	Standard formula SCR stress tests
61	Standard formula SCR Risk modules
62	Standard formula SCR: Diversification
63	Correlation matrix for BSCR in QIS5
64	Components in Market, Default and Life risk modules
65	Session 3: ERM Frameworks and Responses to risk
66	Responses to risk
67	Which risk metric to employ?
68	What time horizon to focus on?
69	What confidence level to choose (VaR / TVaR etc.)?
70	Absolute versus relative risk (choice of benchmark)?
71	Hedging
72	Management responses to risk
73	'Local' versus 'global' responses to risk
74	Limits
75	Example way of identifying limits mathematically (1)
76	Example way of identifying limits mathematically (2)
77	Example output
78	Limits - other observations
79	Capital
80	Risk transfer
81	Diversification
82	Hedging
83	Asset-liability management and asset allocation
84	Liquidity management
85	Alter flow of new business
86	Session 3: Agenda covered
87	Important Information

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