Decoding Entropy: A Credit Risk Modelling Perspective

By: Tejas Mhaskar  Abstract: Since its evolution, the concept of Entropy has been applied in various fields like Computer Science, Quantitative Finance, Physics etc. The definition of Entropy has slightly different meanings depending on the field of science to which…

Governance and Records in Closely-Held Companies

By: Valerio Giannini Corporate governance isn’t important until it is. The greatest hazard of poor governance is compromising protection against personal liability. In addition a review of corporate governance records is high on the due diligence lists of lenders, investors…

Risk Management Events

Attending risk management events is an effective approach to staying current on developments in risk management. Going to an event allows you to exchange ideas with your peers, hear different opinions, get out of the office, and have fun for…

Unrealistic Scenarios – C’mon Man!

By: Geary Sikich The next time you hear that one of your scenarios is unrealistic and that the events could not have occurred in the sequence that are being depicted you might direct your audience to Japan. Imagine a scenario…

Top 10 Risk Management Blogs

Our mission at RiskArticles.com is to promote effective risk management and governance practices in the financial services industry. We do this through our several article posts. As part of our knowledge gathering we read several risk management blogs. Listed below…

FATCA – The Best Opportunity for KYX!

By: Marc Murphy (Fenergo) Having attended the FATCA Forum event in London two weeks ago, one word kept cropping up time and time again in relation to FATCA – not from vendors (surprisingly enough) but from compliance and tax experts…

When is a Black Swan Not a Black Swan?

By: Geary Sikich Introduction There seem to be a lot of sightings of ‘black swans’ lately. Should we be concerned or are we wishfully thinking, caught up in media hype; or are we misinterpreting what a black swan event really…

Accessing Capital: Improve the 5 Metrics that Matter

By: Mary Ellen Biery, Research Specialist, Sageworks, Inc. A recent study found that while nearly 91 percent of private-company owners were enthusiastic about executing growth strategies, only 51 percent reported having the necessary financial resources to do so. Furthermore, the…

Reputation is Expensive

I have recently conducted a survey to gauge views around which risk is more costly to a firm if completely ignored. Although none of the risk types should be completely ignored, it was interesting to find out what people would…

The High Cost of “ERM Herd Mentality”

By: Tim J. Leech Enterprise Risk Management (“ERM”) as a movement has been around for more than a decade. Unfortunately, a 2010 COSO survey disclosed that only limited progress has been made convincing senior management and boards that ERM is…

Cyber Exposures: More than the Technical

By: Douglas A. Nagan Initially, when faced with threats, man had to choose between ‘fight’ or ‘flee’. In these times, we have many more choices because, along with the increased number and sophistication of threats, we have created improved strategies,…

The Case for Evaluating Business Credit

By: Sageworks, Inc., Executive Summary Recent challenges in the U.S.have bolstered the need for examining credit risk. This whitepaper will describe what types of businesses should examine credit risk and under what circumstances evaluating the likelihood that a business will…

Building an Operational Risk System

By: Causal Capital | Martin Davies There are stacks of operational risk reporting systems on the market however, in general many of these risk solutions are overpriced and unsophisticated programs. So, why not build your own operational risk reporting system?…

Compliance Risk – Banking

By: Maria Coppinger-Peters Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, internal policies, and procedures, or ethical standards.  Compliance risk also arises in situations…

Risky Business

By: Geary Sikich To what extent is it feasible to run a corporate risk management program without purchasing insurance? One only has to look as far as the next headline to answer this question. From financial crises to energy catastrophes…

Risk Matrix Basics

By: Ben Ale & David Slater Risk management is an increasingly important task in managing enterprises, companies, countries and societies. The most prominent risks, which attract the public eye the most, are risks that involve human life or health or the…

Don’t Make Fun of Risk Management

By: Trevor Levine There’s an intersection in my neighborhood that makes me nervous to drive through. Imagine a quiet suburban street that goes north-south which intersects the east-west streets that only have stop signs. I’ve observed that frequently cars travelling…

ERM New Year’s Resolutions

By: ericholmquist Ok, honestly I hate resolutions, I really do. Gyms love them, I hate them. The last resolution I made was not to make any more resolutions. Ironically, I’m going to break that resolution. The fact is that enterprise…

Credit Risk Management

The active management of credit risk has been receiving increasing regulator attention and strategic focus at many financial institutions. Regulators cite poor credit risk management at the portfolio level, weak credit standards for borrowers and counterparties, and insufficient attention to…

Liquidity Risk Management

Key Issues in the Management of Liquidity Risk This is the second article in a series of articles on the management of Liquidity Risk. In my first article “Managing Liquidity Risk – The 2007 Crisis” I dealt with the severe…

Risk Management of Remote Deposit Capture

The Federal Financial Institutions Examination Council (FFIEC) issued guidelines on risk management of remote deposit capture (RDC) processes at banks. RDC is a deposit transaction system which permits banks to receive digital information from deposit documents recorded at remote locations.…

Credit Risk Assessment

For many banks, credit risk is a key risk and makes up the largest amount of risk-based capital for the Basel capital allocation. Credit risk arises when dealing with customers, vendors, and other counterparties. It is generally viewed as the…

Risk Appetite – Key Concepts

Introduction A risk appetite is the amount of risk a firm is willing to accept in order to achieve its objectives. The purpose of the risk appetite is to assist in the process of setting the firms strategic objectives and…

Expected Loss (EL) Calculation

Lending institutions need to understand the loss that can be incurred as a result of lending to a company that may default; this is known as expected loss (EL).  EL can be expressed as a simple formula: EL = PD…

Project Risk Management

The sense of urgency for Project Risk Management Are you satisfied with the performance of your programs or projects? Do you realize your business case on time, within budget and right quality? Do you want more project control and fewer…

Another Reform & Another Crisis?

The current financial crisis has spawned new regulations around credit, liquidity and systematic risks. Post Crisis, the regulators and supervisors have a bigger challenge ahead in deciding “What’s next for better tomorrow”? One of the common platforms where Basel Committee…

Operational Risk Management – Key Concepts

Operational Risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk (BCBS). Operational risk is…

Basel III Key Updates

Overview: This article describes a concise history of Basel I & II and provides an overview of the key Basel III rules and regulations. In addition, a comparison of Basel II & Basel III is illustrated. The 1, 2, 3’s…

What is Risk Management?

Risk: Why Manage It? If you look up the synonyms for the word “risk” you will likely receive results such as: danger, hazard, threat, peril, and gamble. So, why do people, companies, governments, and countries expose themselves to risk? The…

Fighting Dodd-Frank: Is Smart Politics, Smart Business?

By: Michael “Mack” Frankfurter Notwithstanding the outcome of the election, it may have been smart politics to fight Dodd-Frank, but is it smart business going forward? Throughout the primary and general election season, Republicans repeatedly invoked the law’s 848-page girth—and…

Black Swans Volitality and Flexibility

By: Geary Sikich We live in a volatile world full of uncertainty. It’s all about targeted flexibility, the art of being prepared, rather than preparing for specific events. Being able to respond rather than being able to forecast, facilitates the…

Reverse Mergers: Beauty or Beast?

By: Valerio Giannini Reverse Mergers can’t be all bad. Even the New York Stock Exchange did one. Reverse Mergers, however, like Pit Bulls, have a bad reputation, often well deserved, but not always. Reverse Mergers are a quick and relatively…

Still Using Spreadsheets to Manage Risks

By: Christina Duren Managing risk is essential in every organization to accomplish its key objectives effectively. Risk management not only requires a reliable process to capture risks, but also needs a mechanism to document and administer the organization’s response. Spreadsheets…

Walking on Shifting Sand ERM in the Age of Uncertainty

By: Geary Sikich Governments and companies worldwide are emerging from the current financial crisis and subsequent recession. While governments are crafting new regulations, businesses around the world are walking in shifting sand as risk exposures are high and new regulations…

Black Swans Grey Swans White Swans Vigilance

By: Geary Sikich We hear a lot about things that are being called “Black Swans” today thanks to Nassim Taleb and his extremely successful book, “The Black Swan: The Impact of the Highly Improbable,” now in its second edition. I…

The Power of Feedback Loops

By: Todd Cooper Enterprise risk management (ERM) is a practice that has gained momentum in response to the global financial crisis. Across the financial services industry, ERM is moving to the center of strategic decision making and many institutions are…

Silos Belong on Farms, Not in Banks

By: Amy Downey & Amy Fields Many banks still manage risks—compliance, operational and financial—separately in silos throughout various departments and operating entities across their organization. In doing so, upper management is not only left open to unforeseen threats and potential…

ERM & the Compliance Professional

By: Denise Tessier Enterprise risk management (ERM) has become one of the most important and valuable management tools for insurance companies. Increased focus on ERM by regulators, auditing firms, and rating agencies has heightened pressure on carriers to adopt robust…

Model Risk – Key Concepts

A model is “a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates.” Model risk is the risk associated with using financial models that are inherently…

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