Professional Documents
Culture Documents
Risk Management
05/15/96
Introduction to Risk
Management
Warning
This workbook is the product of, and copy-
righted by, Citicorp North America, Inc. It is
solely for the internal use of Citicorp North
America, Inc., and may not be used for any
other purpose. It is unlawful to reproduce the
contents of these materials, in whole or in part,
by any method, printed, electronic, or
otherwise; or to disseminate or sell the same
without the prior written consent of Training
and Development Centers - Asia Pacific /
CEEMEA / Latin America.
INTRODUCTION
Introduction: Risk Management Module.............................................................vii
Overview..................................................................................................... vii
Introduction to Risk Management .........................................................................xi
Overview...................................................................................................... xi
Objectives ................................................................................................... xi
Topics......................................................................................................... xii
The Workbook ........................................................................................... xii
Problem Recognition...........................................................................3-12
Remedial Management ......................................................................3-13
Citibank’s Credit Classification System.........................................................3-15
Distribution to Investors ....................................................................................3-17
Summary — Phases I and II .............................................................................3-18
Phase III: Performance Assessment and Reporting.................................................3-19
Portfolio Monitoring ...........................................................................................3-19
Relationship ..........................................................................................3-19
Customer (Obligor)...............................................................................3-19
Facility....................................................................................................3-20
BRR Portfolio and Process Reviews ..............................................................3-21
I. Business Strategy, Staffing, and Organization...........................3-22
II. Risk Origination and Structuring...................................................3-22
III. Structuring and Distribution ...........................................................3-23
IV. Transaction Monitoring, Maintenance, and Collection ............3-23
V. Portfolio Management ..................................................................3-24
Summary............................................................................................................3-24
Progress Check 3.1 ......................................................................................................3-29
Portfolio Management ..................................................................................................3-39
Objectives of a Portfolio Management System..............................................3-40
Risk Ratings.......................................................................................................3-40
Loss Norms........................................................................................................3-41
Citibank's Risk Ratings ....................................................................................3-42
Customer (Obligor) Risk Ratings ....................................................................3-45
Facility Risk Ratings .........................................................................................3-45
Risk-Adjusted Earnings....................................................................................3-46
Summary............................................................................................................3-47
Progress Check 3.2 ......................................................................................................3-49
Appendix
Glossary ...........................................................................................................................G-1
Index
Index....................................................................................................................................I-1
OVERVIEW
OBJECTIVES
TOPICS
THE WORKBOOK
This workbook is designed to give you complete control over your own learning. The
material is divided into workable sections, each containing everything you need to master
the content. You can move through the workbook at your own pace and go back to review
ideas that you didn’t completely understand the first time. Each unit contains:
INTRODUCTION
UNIT OBJECTIVES
n Credit Risk
n Market Risk
n Other Major Risks
Figure 1.1 illustrates these risk categories with some of the specific
risks that are associated with each category. This list does not include
all possible risks associated with the bank's business. Other normal
risks found in every business activity include operations and
technology, legal, tax, and human resources. These, too, must be
identified and managed by the responsible Line Manager.
CREDIT RISK
Credit risk is the risk that financial obligations to Citibank will not
be paid on time and in full as expected or contracted, resulting in a
financial loss for the bank. Credit risk is a customer-related risk
because the dimension of the risk depends on the customer's
willingness and ability to fulfill all obligations to the bank. There
are six types of credit risk:
Lending Risk
Associated with Lending risk is associated with extensions of credit and/or credit-
extensions of sensitive products, such as loans and overdrafts, where the bank bears the
credit full risk for the entire life of the transaction. There are two types of
lending risk: direct and contingent.
Direct lending risk is the risk that actual customer obligations will
not be settled on time. Direct lending risk occurs in products ranging
from loans and overdrafts to credit cards and residential mortgages. It
exists for the entire life of the transaction.
Example Let's look at an example that illustrates contingent lending risk. ABC, Inc.,
a government-owned oil company, contracts with LMN Builders, Inc. to
construct an oil refinery in that country. As part of the contract, ABC
demands that LMN obtain a letter of credit from its bank with ABC as
beneficiary. The letter of credit states that upon the first written demand
from ABC indicating that work has not been performed according to the
contract, the bank will pay ABC. Up to this point, the obligation is a
contingent risk for the bank – it only has to pay if ABC makes a
claim.Once the bank pays ABC, then the obligation becomes
a loan to LMN which LMN is expected to repay.Although LMN
indemnifies the bank against such payment, the bank has a direct lending
risk that LMN will not pay.
Issuer Risk
Associated with Issuer risk occurs in underwriting and distribution activities when the
underwriting and bank commits to purchase a security or other debt instrument from an
distribution issuer or seller and there is a risk that the instrument cannot be sold
within a predetermined holding period to an investor or purchaser. If
this happens, the bank as the holder of the instrument
is exposed to direct lending risk and unintended price risk.
Issuer risk is the risk that the market value of a security or other debt
instrument that the bank intends to hold for a short period of time may
change when the perceived or actual credit standing of the issuer
changes, thereby exposing the bank to a financial loss. Issuer risk is
interrelated with price risk. (See page 1-7).
For example, let's look at a situation that could occur in the US.
Suppose that BigShop needs financing, and Midtown Bank agrees to
underwrite a fixed-rate mortgage. Midtown does not intend to hold the
mortgage on its books but, instead, plans to sell the mortgage within
30 days to investors.In this situation, Midtown first has price risk,
which is the risk that interest rates will rise before the bank sells the
bonds. If interest rates rise,the value of the fixed-rate bonds will drop
and Midtown will suffer the loss.Second, Midtown has credit risk,
which is the risk that the perceived or actual credit standing of
BigShop will deteriorate before the bank sells the bonds. If BigShop's
credit standing deteriorates, interest rates will rise only for BigShop.
The effect on the value of those bonds and the P & L of Midtown Bank
will be the same as if interest rates in general had risen in the
marketplace.
Counterparty Risk
Pre-settlement Risk
Risk of customer Pre-settlement risk is the risk that a counterparty may default on a
default before contractual obligation to the bank before settlement date of the
contract value contract. Pre-settlement risk is measured in terms of the current
date economic cost to replace the defaulted contract with another
customer (known as "current mark-to-market") plus the possible
increase in the economic replacement cost due to future market
volatility (known as the "maximum likely increase in value").
Settlement Risk
Risk of customer Settlement risk occurs on the maturity date when the bank
default on simultaneously exchanges funds with a counterparty for the same value
contract date and cannot verify that payment has been received until after the
value date bank's side of the transaction has been paid or delivered. In today's
international banking environment, the different time zones between
countries make it difficult to achieve a simultaneous exchange
between counterparties.
The risk is that we deliver our side of the transaction but do not
receive delivery and, therefore, are exposed to direct lending risk. In
this situation, at least 100% of the principal amount is at risk. The risk
may be larger than 100% if, in addition, there has been an adverse
price fluctuation for us between the contract price and the market
price.
In this case, the risk is more than 100% because the market price for
1US$ has moved from 120 to 130 Yen before the contract is settled.
If the counterparty fails to deliver the dollars, Bank XYZ will have to
replace the dollars (100% of the principal) at the higher rate.
Therefore, the risk is actually more than 100%.
Clearing Risk
Clearing risk is the possibility that the bank may not be reimbursed
on the same value date for payments that are made on behalf of
customers. Clearing risk occurs when the bank acts on a customer's
instructions to transfer funds before being reimbursed.
MARKET RISK
Price Risk
n Interest rates
n Volatilities in options
Interest Rates
Sensitivity to The yield curve represents the relationship between interest rates
changes in the (yield) and time to maturity. Interest rate fluctuations affect the value
yield curve of all interest rate-sensitive positions. Some positions are more
sensitive to the level of interest rates and some are more sensitive to
the differential between rates.*
*For details on yield curve and interest rate level and interest rate
differential-sensitive positions, see the Market Risk Management
self-instruction workbook.
Commodity Prices
Price changes Changes in commodity prices can affect the value of net positions in
affect value of foreign currencies, equities, precious metals and other commodities.
net positions A net position is the difference between assets plus any unliquidated
purchases on one side and liabilities plus any unliquidated sales on the
other side in a given commodity.
Net FX position A foreign currency net position is overbought when assets plus
unliquidated purchases in a currency exceed liabilities plus
unliquidated sales in the same currency; a net position is oversold
when liabilities plus unliquidated sales exceed assets plus unliquidated
purchases. Net position risk is the risk that there will
be adverse fluctuations in currency values when we hold a net
overbought or net oversold position. Currency fluctuations are
typically influenced by economic and/or political events in the world.
Volatility in Options
Affects the value Volatility in options is a market-focused risk associated with the
of an option magnitude of expected changes in the market price of the "underlying"
to which the option relates. Higher expected volatility increases the
value of an option and lower expected volatility decreases the value of
an option.
Liquidity Risk
Liquidity risk is the risk that the bank may be unable to meet its
financial commitments to customers or other market participants.
Liquidity exposures may arise in both funding and trading activities.
Inability to Funding liquidity risk is the risk that funds will not be available to
meet obligations meet financial commitments when they are contractually due.
when due
For example, Bank A borrows $1 million for 30 days from Bank B and
lends it to Bank C for 90 days. After 30 days, Bank A has to repay the
borrowed funds to Bank B or borrow again for another 30- or 60-day
period. Bank A's risk is that it will be unable to renew the 30-day
borrowing to match the remaining 60-day period of the loan to Bank C
and, therefore, will not have the available cash flow to repay the funds
to Bank B.
Inability to Trading liquidity risk is the risk that the bank will not be able to
liquidate a instantly liquidate price risk positions without changing market prices,
position to meet attracting the attention of other market participants, or compromising
funding needs on counterparty quality. The inability to liquidate
a position quickly may impair funding liquidity or cause losses in
situations where we have a substantial price risk position that cannot
be liquidated before the market price changes.
Issuer Risk
Market risk is made up of two elements: price risk and liquidity risk.
Price risk is the risk associated with changes in market factors that
affect the value of all positions. These factors include interest rates,
commodity prices, and volatility in options.
Liquidity risk is the risk that Citibank will not be able to meet financial
commitments to customers or other market participants when they are
due. There are two types of liquidity risk. Funding liquidity risk is the
risk that the bank will not have the funds available to fulfill its financial
obligations. Trading liquidity risk is the risk that the bank will be
unable to liquidate assets or will have
to liquidate at a loss for funding purposes.
In addition to credit risk and market risk, other major risks associated
with the bank's activities must be managed. In the next section, we will
discuss some of these risks.
Equity Risk
Risk of fluctuation Equity risk occurs when the bank invests in, holds, or receives equity,
in value of equity-like securities, or other junior securities in non-affiliated
equities entities. These securities include instruments such as common shares,
preferred shares, and related derivative instruments such as warrants,
stock options, calls, and stock index futures.
For example, Builders, Inc. decides to issue shares of stock and asks
Bank XYZ to manage the underwriting of these shares. Many shares
are sold to other investors, but Bank XYZ keeps a portion of them and,
thus, becomes a shareholder in Builders, Inc. If Builders does well, the
value of the shares may increase; but if the company experiences
adverse business conditions, the value of the shares may decrease.
XYZ, along with the other shareholders, is risking a fluctuation in the
value of the stock.
Country Risk
Government Political risk is the risk that the actions of a sovereign government (such
actions or as nationalization or expropriation) or independent events (such as war,
independent riots, or civil commotion) may affect the ability of customers in that
events country to meet their obligations to Citibank. Nationalization or
expropriation risk exists when a government action deprives a borrower
of access to significant assets, or prevents the borrower from operating
all or part of its business.
Convertibility Risk
Transfer Risk
Prohibition of Transfer risk is the risk that a borrower will be unable (due to legal or
funds movement payment barriers) to move funds in the foreign currency of a transaction
when an obligation in that currency matures.
Fiduciary Risk
Acting on Fiduciary risk occurs when the bank is charged with the responsibility
behalf of a of acting as a trustee for any third party. The risk is reduced by having
third party a trust agreement that clearly defines our duties and responsibilities and
specifies when we may be exposed to potential or real conflicts of
interest.
Documentation Risk
For example, Bank XYZ grants a loan to Builders, Inc. and asks Builders,
Inc. to sign a promissory note. Mr. Smith of Builders signs the note, but
he is not authorized by the company to do so. The note becomes
unenforceable, and the bank may not be able to use the documentation as
proof of claim if Builders, Inc. defaults on the loan.
Disclosure Risk
Improper Disclosure risk occurs when we act as an agent for other investors,
information either as an underwriter or as an advisor on a transaction. The bank
reporting is required to disclose certain information, and the risk is that we:
Regulatory, civil, Legal and regulatory risk occurs whenever the bank, a related
or criminal corporate entity (such as a non-bank subsidiary or affiliate), a
sanctions or transaction, or a customer is subject to a change in exposure resulting
litigation from regulatory, civil or criminal sanctions, or litigation. Strict
compliance with all relevant regulations is one of Citibank's core
values and is essential to our reputation and success.
When a transaction does not comply with all the applicable laws and
regulations, the bank may face civil, criminal, and administrative
proceedings and may also be fined.
Systems Risk
Operational Systems risk refers to those risks arising from the operational
aspects of a aspects of the product, including systems which can be both external
product and internal to the bank. In many instances, these risks are associated
with the use of technology.
Equity risk is the risk that the value of equities will fluctuate
adversely.
Fiduciary risk arises from acting for the benefit of a third party.
Each bank product has specific risks associated with it. The
profitability of a transaction depends on our ability to recognize,
analyze, and manage the risks. Let's look at two examples of risks
associated with specific transactions.
Trade Finance
Shipments to the importer begin in nine months and take place over a
period of two months. For each shipment received, the importer has
thirty days to remit the corresponding payment to Citibank , N.Y. In the
meantime, the exporter pays Citibank, N.Y. 10% p.a. interest on the
balance due. This rate is a function of the risks associated with the
transaction and the cost of mitigating the risks.
n Credit Risk: Risk that the importer is unable to pay all or part
of the principal
UNIT SUMMARY
The major categories of risk are: credit risk, market risk, and other
major risks, including equity, country, fiduciary, documentation,
disclosure, legal / regulatory, and systems risk.
You have completed Unit One: Risk Categories. Please complete the following Progress
Check before continuing to Unit Two: Citibank's Risk Management Organization. If you
answer any Progress Check question incorrectly, you should return to the text and read the
corresponding section again.
þ PROGRESS CHECK 1
Directions: Select the correct answer for the following questions. There is only one
correct answer unless otherwise stated in the question. Check your answers
with the Answer Key on the next page. If you answer any of the questions
incorrectly, return to the appropriate section of the text and review the
material.
Question 1: In the spaces below, write the major risk categories. You may select from the
following list:
ANSWER KEY
Question 1: In the spaces below, write the major risk categories. You may select from the
following list:
PROGRESS CHECK 1
(Continued)
Question 2: Below are descriptions of some major risk categories. Beside each
description, write the risk category it defines.
ANSWER KEY
Question 2: Below are descriptions of some major risks. Beside each description, write
the risk category it defines.
f) Credit When a bank makes a loan, it must make sure that the
customer will be able to fulfill all obligations.
PROGRESS CHECK 1
(Continued)
Question 3: The type of transaction largely determines the predominant risk associated
with it. Several types of transactions are described below. Beside each
description, write the letter of the predominant risk incurred in that
transaction.
a) Issuer Risk
b) Pre-settlement Risk
c) Liquidity Risk
d) Fiduciary Risk
e) Documentation Risk
ANSWER KEY
Question 3: The type of transaction largely determines the predominant risk associated
with it. Several types of transactions are described below. Beside each
description, write the letter of the predominant risk incurred in that
transaction.
a) Issuer Risk
b) Pre-settlement Risk
c) Liquidity Risk
d) Fiduciary Risk
e) Documentation Risk
INTRODUCTION
After the risks of a transaction have been identified, we estimate the probability that each
risk will materialize, evaluate its potential impact on our business, and develop a plan to
minimize it. In this unit, you will learn about the different groups that participate in the risk
management process. You will also see how the policies, rules, and procedures for the risk
management process are implemented, enforced, and reviewed in Citibank.
UNIT OBJECTIVES
n Management Committee
n Line Management
MANAGEMENT COMMITTEE
+ Risk tolerance level
+ Goals for risk management activities
LINE MANAGEMENT
+ Procedures
+ Implementation
In the sections that follow, we will discuss the roles and general
responsibilities of each group.
MANAGEMENT COMMITTEE
Establishes The CPC is a senior-level staff group that establishes policies for
policies for credit risk and equity risk. These include approval hierarchies, rules
credit risk and and standards covering credit products, and limits for portfolio
equity risk concentrations.
CPC issues the Citibank Core Credit Policies (CCCP) manual that
includes an overview of Citibank's credit philosophy, a summary of the
credit policy development process, the organization and phases of the
credit process, approval rules, and specific credit policies. The CPC
updates the core credit policies and rules and then communicates the
changes by issuing replacement pages for the CCCP document. In
addition, Line Management consults with the chairman or a member
of CPC in accordance with CCCP.
Monitoring and The CPC also acts as one check and balance for the credit process.
advisory role The committee monitors ongoing risk management activities and acts
in an advisory capacity when needed.
Staffing and The CPC's role in staffing and development is to maintain the integrity
training of the institutional credit approval system and the integrity and quality
responsibilities of credit officers. In this capacity, the CPC:
General The MRPC's responsibilities include, but are not limited to:
responsibilities
n Setting corporate policies and guidelines for market risk
measurement, management, and reporting
In the next section, we will discuss the role of Line Management in the
risk process. Line Management is the group that is responsible for
developing and implementing procedures that comply with the policies
and rules established by the committees.
LINE MANAGEMENT
Credit risk Line Management is the core of Citibank's decentralized credit risk
management management system. The bank depends on Line Management to:
responsibilities
n Develop a business strategy, including target markets and risk
acceptance criteria, in accordance with established policy and
portfolio parameters
(Risk Acceptance Criteria [RAC or RAAC] is a set of
characteristics used to define the type of risk the bank is willing
to assume for each targeted industry and to identify potential
customers within an industry.)
Staffing and Like CPC and MRPC, Line Management also has a role in staffing and
development development. Specifically, Line Management must:
responsibilities
n Determine the skill level necessary to undertake and manage
credit risk proposed in the business plan
n Establish appropriate risk management policies and procedures
n Ensure highly qualified personnel through selection and training
n Nominate Senior Credit Officers, Senior Securities Officers,
and other credit authority delegations
Expert in Senior Securities Officers (SSO) are specialists who apply their
underwriting experience and expertise to risk and process decisions for
and distribution underwriting and distribution activities. These capabilities have
activities evolved to their current level of sophistication in a relatively short
period of time and continue to evolve in a rapidly changing market
environment.
SSOs are appointed to preserve the integrity and manage the risk of
Citibank's market practices in the underwriting and distribution to
investors of corporate, money market, and government instruments.
Their major responsibilities are to:
In the next section you will see how Business Risk Review provides an
independent evaluation of risk positions and risk management policies
and procedures.
Independent Business Risk Review assesses portfolio risk and the risk
evaluation of management process from a business unit perspective. It provides an
business risk independent evaluation of Citibank's business risk exposures and the
management adequacy of policies, practices, procedures, and reporting
mechanisms used to manage these risk positions.
The BRR determines the value and collectability of both direct and
contingent individual assets and also estimates the potential loss in
risk portfolios. To estimate loss, the BRR evaluates the:
Process Assessment
The BRR reviews the performance of each business unit against its risk
management standards and against institutional standards. It
also evaluates the risk management procedures developed by
Line Management. Finally, it reviews the implementation of
recommended improvements to the risk management process,
related MIS systems, and to portfolio management.
UNIT SUMMARY
Senior Credit Officers are ultimately responsible for credit risk and
process decisions. Senior Securities Officers are responsible for risk
and process decisions relative to underwriting and distribution
activities.
You have completed Unit Two: Citibank's Risk Management Organization. Please
complete the following Progress Check before continuing to Unit Three: Managing Credit
Risk in Citibank. If you answer any Progress Check question incorrectly, you should return
to the text and read that section again.
þ PROGRESS CHECK 2
Directions: Select the correct answer for the following questions. There is only one correct
answer unless otherwise stated in the question. Check your answers with the
Answer Key on the next page. If you answer any of the questions incorrectly,
return to the appropriate section of the text and review the material.
Question 2: Complete the statements below by providing the correct answer from the list:
ANSWER KEY
Question 2: Complete the statements below by providing the correct answer from the list:
Management Committee establishes the risk tolerance level for the bank and sets
the tone for risk management activities.
The Credit Policy Committee and the Market Risk Policy Committee establish
policies and rules for risk management.
Business Risk Review reviews and evaluates policies, rules, and procedures to
ensure that portfolios are structured to achieve the corporation's goals.
PROGRESS CHECK 2
(Continued)
____ a) preserve the integrity of the bank's credit policies and to exercise
balanced independent judgment.
ANSWER KEY
PROGRESS CHECK 2
(Continued)
Question 5: Listed below are some risk management duties. Next to each duty write the
letter of the group that is primarily responsible for carrying it out.
a) Management Committee
b) Credit Policy Committee ( CPC)
c) Market Risk Policy Committee ( MRPC)
d) Line Management
e) Business Risk Review ( BRR)
ANSWER KEY
Question 5: Listed below are some risk management duties. Next to each duty write the
letter of the group that is mainly responsible for carrying it out.
a) Management Committee
b) Credit Policy Committee (CPC)
c) Market Risk Policy Committee (MRPC)
d) Line Management
e) Business Risk Review (BRR)
INTRODUCTION
In Unit One, we defined the major categories of risk that are inherent in banking activities.
We discussed Citibank's risk management organization in Unit Two and identified Line
Management as the group that is responsible and accountable for creating and managing
risk. The risks described in Unit One cannot be effectively managed in isolation; actions to
reduce one type of risk can often increase another. As a Citibanker, it is important for you
to understand the credit risk management process and how your own responsibilities might
contribute to the bank's portfolio and risk management goals.
In this unit, we will focus on the credit process and those elements that address portfolio
management.
UNIT OBJECTIVES
n Identify the three phases of the credit process as defined by Core Credit
Policies
n Recognize the key risks of the Business Risk Review audit process
Individual and Citibank's organization and credit activities are built around two basic
commercial customer constituencies: individuals and commercial enterprises. We
customer will focus on the commercial credit model, which
constituencies is geared toward lower transaction volume, larger transaction size, and
customized products that require a judgmental process for originating,
approving, and maintaining transactions. The goals
of an efficient and effective credit process are to:
Three phases To manage the credit process with predictable results, we must
of the credit understand the dynamic and interactive nature of each phase of the
process credit process. The three phases, as defined in Citibank Core Credit
Policies, are:
Responsibilities Each group that participates in the credit process has well-defined
responsibilities.
Management Committee
• Establishes performance objectives and portfolio
composition criteria for the bank
• Sets concentration limits with Credit Policy
Committee
Line Management
• Establishes a business strategy
• Distributes to investors
• Monitors performance of credits, problem
indentification, and remedial management
In the next sections, we will look at each phase of the credit process.
Objectives Portfolio strategy and planning activities are an integral part of the
annual planning process for each business. The objectives of this phase
of the credit process are to define:
Concentration Limits
Limits for Group Executive Vice-presidents, with approval of the Credit Policy
different risk Committee, set specific concentration limits to control Citibank's
dimensions exposure to different portfolio risk dimensions. Concentration limits
must be set for at least the following risk factors:
n Customer
n Industry
n Geography
n Product
n Risk rating
Credit Policies
Balance earnings Our goal is to achieve our risk-adjusted earnings objective and satisfy
objective with our customers' needs while maintaining a sound credit portfolio.
customer needs Credit policies help us to achieve this balance. Credit policies
include:
Business Strategy
Plan for meeting Citibank's objective is to build strong customer relationships and
targeted diversified product portfolios. We target industry sectors in which we
earnings can achieve a strong market position and adequate returns on capital.
objective Each business charts a course for achieving a targeted risk-adjusted
earnings objective and designs products to translate a risk-conscious
business strategy into terms and conditions that control risk.
Risk acceptance Risk acceptance criteria are the terms and conditions for selecting
criteria: customers within the target market. Once a business has developed
screening a business strategy and identified a target market, it must establish
tools screening tools to ensure that individual exposures and the overall
portfolio are consistent with business objectives. A business identifies
specific accounts that fit its risk acceptance criteria. The criteria may
include such indicators as:
n Level of sales
n Management quality
n Growth potential
n Relationship with government
n Position within the industry sector
n Financial parameters
n Suitable credit terms
n Earnings potential for the bank
Origination
Evaluation
n Character
n Operations
n Management
n Strategy
n Industry as a whole
n Competitors of the company
n Prevailing business conditions
The bank checks the capacity of the customer to generate enough cash
flow to fulfill its obligations to the bank as well as its other financial
obligations. Financial evaluation includes an analysis of the:
Approval
Normal risk Once a credit transaction has been approved, processes must be in
management place for monitoring the risk exposure and maintaining it at an
acceptable level. Normal risk management includes:
Problem Recognition
Classified The commercial credit model uses a judgmental process for classifying
credit credits. There are five classification categories: one category for sound
process credit exposures and four categories of adverse classification indicating
increasing degrees of potential risk of loss. The purpose of the
classified credit process is to establish a consistent approach to
problem recognition, labeling, remediation, and the setting of reserves
for credit exposures that are managed on a judgmental basis. The
process is designed to:
Remedial Management
Category
Classification Definition Characteristics
I Current No evident weakness Obligations, or portions of obligations, for which interest
and principal payments are fully up to date, and orderly
repayment and/or timely settlement in the future is
without doubt.
Category
Classification Definition Characteristics
IA (Other Assets + Other indicators:
Especially − failed syndication or sell-down, reflecting market
Mentioned) assessment
(Continued) − weak operational or financial controls and internal
MIS
− inadequate or outdated financial data
− qualified auditor’s opinion
− significant litigation
− material adverse change vis-a-vis the rationale for
original risk decision
II (Substandard) Normal repayment of + Indicators are the same as for IA, but in a more
principal and interest may aggravated situation;
be or has been + Other indicators:
jeopardized; − credit line frozen due to political pressure, legal
action, etc.
No loss is yet foreseen,
− bank locked in due to lack of alternative funding
but protracted workout
sources
period is possible.
− ineffective creditor coordination
− assets may be pledged to third parties
− debt restructuring required
− bankruptcy, foreclosure, forced liquidation
III (Doubtful) Full payment appears + Key indicator here is the prospect of loss.
questionable on basis of Characteristics are more adverse than IA and II.
current information; + Other indicators:
− auditor’s disclaimer of opinion or a qualification as
Certain degree of loss, as
to continued viability of company
yet undetermined, is
− uncertain collateral coverage
possible.
− negative net worth and working capital
− trade credit frozen
− full recovery dependent on unlikely events
− ineffectiveness of borrowers’ or creditors’ remedial
efforts
− consistent failure to meet commitments
− principal or interest past due 90 days
Distribution to Investors
Agent for After placing an asset with third party investors, the bank may act as an
transaction agent by performing contractually defined tasks to facilitate the
transfer of information and/or money between the issuers and the
investors. To maintain portfolio quality and reputation, syndicated
loans must be managed with the same attention and care as held assets.
Portfolio Monitoring
Assess portfolio Senior Managers and Line Managers continually monitor the portfolio
and adjust to improve portfolio performance. They track portfolio and process
process trends and make appropriate and timely adjustments to business
strategies, portfolio parameters, credit policies, and credit origination
and maintenance practices.
Relationship
Customer (Obligor)
n Name of subsidiary
Facility
Five components For BRR credit review purposes, the credit risk management process is
of BRR business organized as a business flow consisting of five components:
flow
I. Business Strategy, Staffing and Organization
V. Portfolio Management
V. Portfolio Management
Summary
Figure 3.1 on the next page is a model of the three phases of the credit
process as presented in Citibank Core Credit Policies. The model
presents the functions that occur in each phase and the risk
organization group that is responsible for each function.
The comparison table in Figure 3.2 shows the relationship between the
three-phased credit process and the five components of the business
flow used by BRR in its review process. You can see that Phase I of the
credit process involves managing the key risk factors identified as part
of BRR's "Business Strategy, Staffing, and Organization" business flow.
Phase II of the credit process relates
to the second, third, and fourth business flows. Finally, Phase III
relates to the key risk factors of BRR's "Portfolio Management"
business flow.
Solicit customer
and evaluate risk.
Line Management
Approve using:
II. Credit Origination + Credit Program
and Maintenance + Credit Transaction
Line
Management
Monitor and maintain credit. Distribute to investors.
Line Management
II. Credit Origination and Maintenance II. Risk Origination and Structuring
+ Evaluation
+ Compliance
+ Valuation
+ Approval
+ Documentation
Figure 3.2: Relationship between Credit Process and BRR Business Flow
You have completed the section on the Credit Process. Please proceed to Progress Check
3.1 and answer the questions to check your understanding of the material. Then, continue
with the next section, "Portfolio Management."
Directions: Select the correct answer for the following questions. There is only one correct
answer unless otherwise stated in the question. Check your answers with the
Answer Key on the next page. If you answer any of the questions incorrectly,
return to the appropriate section of the text and review the material.
Question 1: The three phases of the credit process may be summarized as:
Question 3: Concentration limits must be set for at least the following portfolio risk
dimensions:
ANSWER KEY
Question 1: The three phases of the credit process may be summarized as:
Question 3: Concentration limits must be set for at least the following portfolio risk
dimensions:
Question 5: The "credit origination and maintenance" phase includes many activities.
Identify the category that applies to each of the following activities by writing
the letter of the category next to the activity.
ANSWER KEY
a) Policies
b) Standards
e) Procedures
Question 5: The "credit origination and maintenance" phase includes many activities.
Identify the category that applies to each of the following activities by writing
the letter of the category next to the activity.
E Assessment of key internal and external factors that may affect the
customer's business
E Assessing the value of a customer's collateral
O Soliciting a customer
M Timely intervention to minimize losses
D Remarketing a transaction to a third party
O Preparing the loan contract
A Applying the three-initial system
M Early detection of problem credits
D Disposing of assets at favorable prices
E Analyzing the customer's management team
A Appointing a responsible officer
E Assessing the company's future cash flows
E Understanding the customer's business strategy
M Classifying problem credits
____ a) Different standards apply when assets are originated for sale to third
parties than when they are held assets.
____ d) Syndicated loans must be managed with the same careful attention as held
assets.
Question 7: Select the key performance indicators that are periodically reported for
problem accounts:
ANSWER KEY
F a) Different standards apply when assets are originated for sale to third
parties than when they are held assets.
T d) Syndicated loans must be managed with the same careful attention as held
assets.
Question 7: Select the key performance indicators that are periodically reported for
problem accounts:
Question 8: To handle problem accounts, management may assign a special task force,
which is called:
____ a) Rank the portfolio from most risky to less risky assets.
____ b) Categorize credits by seve rity of actual and potential loss.
____ c) Classify loans by industry sector.
____ d) Support the timely update of the target market analysis.
____ e) Highlight problem credits for attention and action.
____ f) Apply a common language and method to problem loan identification and
management.
____ a) Assess the value and collectability of direct and contingent assets.
____ b) Assess target market selections.
____ c) Evaluate management performance.
____ d) Analyze portfolio risk positions.
____ e) Evaluate potential for loss.
____ f) Analyze business unit balance sheets.
ANSWER KEY
Question 8: To handle problem accounts, management may assign a special task force,
which is called:
a) a "workout unit."
Question 11: Match each of the five components of BRR's business flow with its
corresponding key risk factors:
Evaluation
Compliance
Valuation
Approval
Documentation
Portfolio Strategy
Data Integrity
Risk Administration
Problem Recognition
Remedial Management
Underwriting Analysis
Sales and Trading
Agency
Target Market
Risk Acceptance Criteria
Organization and Staffing
ANSWER KEY
Question 11: Match each of the five components of BRR's business flow with its
corresponding key risk factors:
II Evaluation
Compliance
Valuation
Approval
Documentation
V Portfolio Strategy
Data Integrity
IV Risk Administration
Problem Recognition
Remedial Management
I Target Market
Risk Acceptance Criteria
Organization and Staffing
PORTFOLIO MANAGEMENT
Risk Ratings
Loss Norms
On pages 3-42 through 3-44, you can see a comparison of Standard &
Poor's ( S&P ) debt ratings and Citibank's risk ratings. Each Citibank
risk rating is listed with the corresponding S&P rating, a definition of
the rating, and some characteristics of companies that may be assigned
each rating. Keep in mind that loss norms are the only formal
definition of Citibank's ratings; the S&P ratings are shown only as a
comparison to help with an understanding.
Citibank’s Corresponding
Risk Standard &
Rating Poor Rating Definition Characteristics
1 AAA Largely risk free + Normally includes transactions with full cash
collateral; wholly owned subsidiaries or branches
with S&P AAA rating, or 100% guaranteed by
AAA-rated banks.
+ Superior credit risk, with unquestionable
repayment record.
Citibank’s Corresponding
Risk Standard &
Rating Poor Rating Definition Characteristics
8* CC Special mention The borrower has credits which:
+ show evidence of weakness in its financial
condition; or
+ are subject to an unrealistic repayment program;
or
+ lack adequate collateral, credit information, or
documentation.
* Credits rated below investment grade (i.e. 5 or higher) may be more subject to adverse
classifications.
Debt rating Customer risk ratings are assigned by using a debt rating model ( DRM),
models if one is available, that has been approved for use by a member of the
Credit Policy Committee. A debt rating model is a statistical model that
matches the profile of an individual customer against established
standard profiles for each risk rating to determine the appropriate risk
rating for the customer. DRMs analyze both the quantitative financial
data of the customer and, for non-investment grade debt, qualitative
factors, including:
Where an approved debt rating model is not available, risk ratings must
be assigned on a judgmental basis according to guidelines that have
been established to control this process. The customer risk rating is
determined by the loss norm applicable to unsecured senior
obligations of the customer.
Adjust customer To assign the final risk rating, which determines the loss norm
risk rating associated with a facility, it may be necessary to adjust the customer
risk rating up or down to reflect specific considerations that will
impact the loss in the event of default. These factors include:
Risk-Adjusted Earnings
Summary
You have completed Unit Three: Managing Credit Risk in Citibank. Please proceed to
Progress Check 3.2 to check your understanding. Then continue with the final unit in this
course: Managing Market Risk in Citibank.
Directions: Select the correct answer for the following questions. There is only one correct
answer unless otherwise stated in the question. Check your answers with the
Answer Key on the next page. If you answer any of the questions incorrectly,
return to the appropriate section of the text and review the material.
Question 13: The loss norm associated with a risk rating assigned to a customer or facility
represents:
____ a) a comparison, on average, of the amount of loss that resulted from the
default of other customers and facilities.
____ c) the reliability and validity of the average loss resulting from transactions
in a specific industry.
____ d) the average present value of a transaction over a twelve month period
multiplied by the average loss resulting from market rate fluctuations.
ANSWER KEY
Question 13: The loss norm associated with a risk rating assigned to a customer or facility
represents:
____ a) adjusting annual earnings to reflect expected loss and capital charges.
____ c) estimating the cost of credit and capital over a twelve month period.
____ d) adjusting after tax income to reflect earnings and the loss norm.
ANSWER KEY
INTRODUCTION
In Unit Three, we focused on the process of planning, originating, and managing credit
exposures. In this unit, we will present an overview of Citibank's market risk management
philosophy and the centrally established policies and procedures that serve as guidelines for
a decentralized market risk management process.
UNIT OBJECTIVES
n Recognize the five steps of the Market Risk Policy Committee risk
management process
n Understand the liquidity and price risk limit approval process in Citibank
Market risk is a generic term for price risk and liquidity risk. It is
fundamental to our business of providing financial services to
customers and intermediating markets. Market risk is most effectively
managed by professionals who have close, ongoing relationships with
customers, products, and markets.
Trading portfolio Citibank's trading portfolios are managed to support customer needs
marked-to- and to take advantage of short-term market opportunities. Trading
market daily portfolio price risks are marked-to-market daily, with gains and
losses reflected in current earnings. Marking-to-market is
accomplished by simulating the orderly liquidation of a position,
which means determining the price at which each position may be
liquidated if it becomes necessary to do so. To ensure that the
potential impact of changes in market prices on earnings is
controlled within acceptable limits, trading portfolios are subject to
well-defined price risk limits which, when exceeded, trigger specific
management actions.
Accrual portfolio Citibank’s accrual portfolios consist of all assets and liabilities
(including some derivative contracts) that are not intended to be sold
prior to maturity. Transactions in an accrual portfolio are represented
either by non-negotiable instruments or negotiable instruments used
to hedge exposures of accounts that are intended to be held until
maturity.
Profits and losses in these portfolios are “accrued” during the life of
the contracts. This means that the mark-to-market value does
not affect the profit and loss ( P&L) account — it is only used for
management decision purposes. Therefore, price risk associated
with an accrual portfolio should be differentiated from price risk
generated in a trading portfolio.
Essential for Citibank defines liquidity as having funds available at all times to
maintaining meet fully and promptly all contractual obligations. Effective
reputation in liquidity management is also essential to maintaining market
the market confidence, attaining the flexibility necessary to capitalize on
business expansion opportunities, and protecting the corporation's
capital base.
Funds not Funding liquidity risk is the risk that funds will not be available to meet
available financial commitments when they are contractually due or that funds
when needed will not be available to take advantage of attractive business
opportunities. The process for achieving funding liquidity consists of:
Liquidity limits Managing funding liquidity risk is accomplished by setting limits on the
amount of cummulative negative cash flows for a given period. These
limits are monitored daily and enforced through information gathered in
the Maximum Cumulative Outflow Report (MCO) — a cash flow
forecast based on “business-as-usual” assumptions.
Limits are also set on cross currency funding activity, where assets in
one currency are funded with liabilities in another currency.
Liquidity triggers To cover specific market structures and practices, management is also
required to set some triggers on balance sheet ratios and/or market
share per product. These ratios are intended to alert management against
a possible adverse balance sheet structure or potential liquidity
problems.
Inability to Trading liquidity risk is the risk that the bank will not be able to instantly
liquidate price liquidate price risk positions without changing market prices, attracting
risk positions the attention of other market participants, or compromising on
counterparty quality.
Trading liquidity is also the result of good credit standing. Not having
trading liquidity may affect our ability to do business. It
is important to be perceived as a good counterparty so that other
market participants will want to provide lines for trading activities.
MRPC
Regional Treasurer
Country Treasurer
Funding strategy The Country Treasurer is responsible for ensuring that the country's
and process liquidity risk management process complies with MRPC policy and
procedures. S/he is responsible for developing a funding approach
and funding process that is flexible enough to encourage transactions,
yet rigorous enough to protect country liquidity. Success depends
on:
ALCO
Liquidity, The Country Asset and Liability Committee ( ALCO) ensures that the
sufficient capital country maintains adequate liquidity, has sufficient capital to meet
and appropriate regulatory and business needs, and has appropriate funding for
funding business growth. ALCO must make sure that individual business
strategies are consistent with these objectives and that the resulting
total country balance sheets, based on Risk-adjusted Asset Principles
(RAAP) and Generally Accepted Accounting Principles ( GAAP), don't
differ materially from forecast.
n Contingency plans for each vehicle that are consistent with the
business operations and market capacity
In this context, the corporate role of the CCO (in addition to this
individual's role as manager of a business) is extremely important.
Strategies for A Country Funding and Liquidity Plan and a Contingency Funding
funding in normal Plan are prepared jointly by the Country Treasurer and the Country
and contingency ALCO at least annually. They include an overview of the funding
environments situation and strategies for funding in normal and contingency
environments for each vehicle in a country. On the basis of their
review of each vehicle's funding position and requirements, the
Country Treasurer, the Country Corporate Officer, the Country
ALCO, and the Regional Treasurer determine the appropriate
liquidity limits for each vehicle and recommend to the MRPC the
consolidated country liquidity limits.
1) Risk identification
4) Limit setting
5) Ongoing validation
Risk Identification
Risk Measurement
n Staff experience
n Market depth
Limit Setting
Requested at Market risk positions are controlled by price risk limits based on
business level; the size and nature of a business. Most important, however, the size
approved by of price risk limits is based on the relationship of the limits to
MRPC expected associated profits. Price risk limits are requested at the
business level and reviewed at higher levels of the business
organization. Final approval is granted by MRPC.
Ongoing Validation
Three signatures Many individuals participate in the approval process and indicate
plus approval by by signing off. However, the approval authority and accountability must
MRPC member be clearly identified and consist of three signatures plus final approval
by an MRPC member. In addition to the business manager, Country
Treasurers and Country Corporate Officers are required to sign all
price risk limits to indicate concurrence on liquidity and regulatory
issues. The approving parties may require an additional sign-off by a
business or product specialist.
Business level managers request price risk limits and submit them
to higher levels of the business organization for review. The three
signatures include two from the business organization and one from
risk management (Country Risk Manager, Regional / Division Risk
Manager). The MRPC reviews and approves price risk limits that have
been recommended by senior line management.
The Country Treasurer (through ALCO and its chairman, the CCO)
is responsible for managing liquidity in the country. After discussion
with each of the local businesses, s/he prepares a Funding and
Liquidity Plan for the country that complies with local and US
regulations governing the flow of funds between vehicles and
businesses.
SUMMARY
Accrual portfolios are represented by all assets and liabilities that are
not intended to be sold prior to maturity. Profits and losses are not
marked to market, but are “accrued” during the life of the contracts.
The limit approval process for both price risk and liquidity risk
requires three signatures in addition to final approval by a member
of the MRPC. Business level managers request price risk limits and
submit them to higher levels of the business organization for review. A
single liquidity limit is requested for the country as a whole through
Country Treasurers, Country ALCO, and Regional Treasurers.
Congratulations! You have completed the final unit of the Introduction to Risk Management
course. Please answer the questions in Progress Check 4 to check your understanding of
the introductory material on how we manage market risk in Citibank .
þ PROGRESS CHECK 4
Directions: Select the correct answers for the following questions. There is only one
correct answer unless otherwise stated in the question. Check your answers
with the Answer Key on the next page. you answer any of the questions
incorrectly, return to the appropriate section of the text and review the
material.
____ b) a situation in which we hold positions that are sensitive to market changes
in their prices.
____ d) a type of credit risk in which earnings are exposed to improper pricing
practices.
____ b) understand the amount that potentially can be lost on existing positions.
____ c) determine the price at which each position will be liquidated if marking-
to-market indicates a profit.
____ d) calculate current profits and losses each day by simulating the liquidation
of positions.
ANSWER KEY
PROGRESS CHECK 4
(Continued)
____ b) Creation and sale of new instruments that represent many smaller
transactions
____ c) A formal plan for maintaining liquidity under different adverse conditions
____ d) Limits on the amount of positive and negative cash flows for a given
period
Question 4: Select three types of positions to avoid in order to achieve trading liquidity.
ANSWER KEY
Question 4: Select three types of positions to avoid in order to achieve trading liquidity.
PROGRESS CHECK 4
(Continued)
Question 5: Match the segment of the Market Risk Management Organization with its
role / responsibility.
_____ Regional Treasurer b) Ensures that the country maintains liquidity, has
sufficient capital, and has appropriate funding for
_____ Country Treasurer growth.
_____ ALCO c) Ensures that the country's liquidity risk
management process complies with corporate
policy and procedures.
____ a) provide a system for preventing the business from assuming price risk
positions.
____ c) allow for the individual needs of a business while adhering to MRPC
standards.
ANSWER KEY
Question 5: Match the segment of the Market Risk Management Organization with its
role / responsibility.
PROGRESS CHECK 4
(Continued)
Question 7: Identify the five major steps that MRPC incorporates in the risk management
process:
____ e) Assessing a business for its capacity to manage price and liquidity risk
____ g) Assuring that each business meets MRPC standards for measuring risk
____ h) Assuring that each business establishes business plans that identify and
quantify price risks and liquidity risks and describe the risk management
process for controlling risks
ANSWER KEY
Question 7: Identify the five major steps that MRPC incorporates in the risk management
process:
PROGRESS CHECK 4
(Continued)
Question 9: The limit approval process for price risk and liquidity risk requires:
____ b) concurrence from regulatory agencies that limits do not violate any
rules and regulations.
____ d) that approval authority and accountability be clearly identified and consist
of three signatures plus final approval by MRPC.
ANSWER KEY
Question 9: The limit approval process for price risk and liquidity risk requires:
GLOSSARY
Assets and Committee in each country that makes sure the country maintains
Liability adequate liquidity, has sufficient capital to meet regulatory and
Committee business needs, and has appropriate funding for business growth
(ALCO)
Business Risk Group that reviews the policies and rules set by the CPC and MRPC
Review and the practices of Line Management to ensure that portfolios are
structured to achieve Management Committee's goals
Clearing Risk Risk that the bank may not be reimbursed on the same value date for
payments that are made on behalf of customers
Country Individual who ensures that the country's liquidity risk management
Treasurer process complies with MRPC policy and is flexible enough to
encourage transactions while protecting country liquidity
Credit Policy Senior-level staff group that establishes policies for credit risk and
Committee equity risk, including approval hierarchies, rules and standards
covering credit products, and limits for portfolio concentrations
Credit Risk Risk that financial obligations to Citibank will not be paid on time
and in full as expected or contracted, resulting in a financial loss
for the bank
Direct Lending Risk that actual customer obligations will not be settled on time
Risk
Disclosure Risk Risk that as an agent for other investors, either as an underwriter
or as an advisor on a transaction, the bank fails to disclose certain
information or discloses incorrect information
Equity Risk Risk of fluctuation in the value of equities when the bank invests
in, holds, or receives equity, equity-like securities, or other junior
securities in non-affiliated entities
Fiduciary Risk Risk associated with the responsibility of acting as a trustee for third
parties
Funding Risk that funds will not be available to meet financial commitments
Liquidity Risk when they are contractually due or that funds will not be available to
take advantage of attractive business opportunities
Issuer Risk Risk that the market value of a security or other debt instrument
that the bank intends to hold for a short period of time may change
when the perceived or actual credit standing of the issuer changes,
thereby exposing the bank to a financial loss
Legal / Risk that occurs whenever the bank, a related corporate entity
Regulatory (such as a non-bank subsidiary or affiliate), a transaction, or a
Risk customer is subject to a change in exposure resulting from
regulatory, civil or criminal sanctions, or litigation
Liquidity Risk Risk that Citibank will be unable to fulfill its contractual obligations
when they are due
Management Committee that establishes the risk tolerance level for the bank
Committee and sets the goals and objectives for risk management activities
Market Risk Generic term for price risk and liquidity risk
Market Risk Committee that establishes corporate policy and standards, and
Policy Committee oversees the market risk management process
(MRPC)
Maximum Report used to monitor and manage limits on the amount of negative
Cumulative cash flows for a given period
Outflow Report
(MCO)
Net Position Difference between assets plus any unliquidated purchases on one
side and liabilities plus any unliquidated sales on the other side in
a commodity such as foreign exchange
Premium Risk-adjusted earnings that reflect both the expected cost of credit
Shareholder and the cost of capital necessary to fund an asset
Income (PSI)
Pre-settlement Risk that the trading partner fails before maturity date and the market
Risk rate changes, resulting in a contract rate that is more attractive than
the prevailing market rate
Price Risk Risk resulting from one or several financial contracts of such a
nature that a change in financial market prices would impact our
profit and loss statement
Regional Individual who acts as liaison between the MRPC and the countries /
Treasurer ALCOs for balance sheet and liquidity management issues
Risk Acceptance Standards for extending credit to ensure that individual exposures and
Criteria (RAC) the overall portfolio are consistent with business objectives
Senior Credit Customer experts who are responsible for preserving the integrity of
Officers credit policies and exercising balanced, independent credit judgment
Senior Securities Specialists who apply their experience and expertise to risk and
Officers process decisions for underwriting and distribution activities
Settlement Risk that the counterparty will fail on the maturity date of a contract
Risk involving an exchange of assets. The risk is that we deliver our side
of the transaction but do not receive delivery
from the counterparty.
Systems Risk Risk arising from the operational aspects of the product, including
systems which can be both external and internal to the bank
Trading Liquidity Risk that the bank will not be able to liquidate assets quickly enough
Risk when cash is needed, or liquidate price risk positions
when an adverse price change is expected
Transfer Risk that funds either cannot be converted into foreign currency
(Cross-border) funds or that converted funds cannot be moved past an exchange
Risk control border
Yield Curve Interest rates for different maturity dates based on the expectations
of market participants for the trend of future interest rates
A
Asset and Liability Committee (ALCO) 4-6, 4-8, 4-14
B
Business Risk Review 2-2, 2-5, 2-9, 2-13, 2-15, 3-1, 3-20, 3-21,
3-23, 3-24, 3-26
C
Clearing Risk 1-4, 1-8
Concentration Limits 3-3—3-5, 3-8, 3-18, 3-20, 3-39, 3-40, 3-
47
Contingent Lending Risk 1-3—1-5
Country Risk 1-14, 1-15, 1-24, 4-12
Country Treasurer 2-7, 4-6, 4-8, 4-9, 4-11—4-13, 4-15
Credit Policy Committee 2-2, 2-4—2-6, 2-8—2-10, 2-12, 2-13, 2-15,
3-3—3-5, 3-18, 3-26, 3-39, 3-45
Credit Risk 1-2, 1-3, 1-6—1-8, 1-12—1-14, 1-16,
1-22—1-24, 2-4, 2-8—2-10, 2-15,
3-1, 3-19, 3-20, 3-22, 3-42, 3-43, 4-2
D
Debt-rating Model 3-39, 3-42—3-44
Direct Lending Risk 1-3—1-5, 1-7
Disclosure Risk 1-14, 1-18, 1-20, 1-24
Documentation Risk 1-14, 1-18, 1-20, 1-24
E
Earnings-at-risk Limit 4-3, 4-10, 4-14
Equity Risk 1-14, 1-15, 1-20, 1-24, 2-4
F
Fiduciary Risk 1-14, 1-17, 1-20, 1-24
Funding Liquidity Risk 1-12, 1-14, 4-4, 4-5, 4-14
I
Issuer Risk 1-3, 1-54, 1-8, 1-12—1-14
L
Legal / Regulatory Risk 1-14, 1-19, 1-21, 1-24
Lending Risk 1-4
Line Management 2-1, 2-2, 2-4, 2-5, 2-8—2-10, 2-12—2-15, 3-1,
3-3, 3-4, 3-8, 3-9, 3-18, 3-20, 3-23, 3-39,
4-2, 4-7, 4-10, 4-12
Liquidity 1-8, 1-11, 1-12, 4-1, 4-4—4-9, 4-11—4-15
Liquidity Risk 1-8, 1-9, 1-11—1-14, 4-1, 4-2, 4-4—4-8, 4-10,
4-11, 4-13—4-15
Loss Norm 3-40, 3-41, 3-45, 3-47
M
Management Committee 2-2, 2-3, 2-5, 2-6, 2-8, 2-9, 2-12, 2-13, 2-15,
3-3, 3-4, 3-5, 3-18, 3-39
Market Risk 1-2, 1-7—1-9, 1-12—1-14.1, 1-24, 2-1, 2-6,
2-7, 2-12, 4-1—4-3, 4-6, 4-7, 4-11—4-15
Market Risk Policy Committee 2-2, 2-6—2-8, 2-15, 4-1, 4-6—4-15
(MRPC)
Marking-to-Market 4-3
Maximum Cumulative Outflow 4-5
Report (MCO)
N
Net Position 1-10
O
Origination 3-3, 3-9, 3-14, 3-17, 3-18, 3-20, 3-21, 3-26,
3-39, 3-40, 3-47
P
Political (Sovereign) Risk 1-14—1-16, 1-20, 1-22
Premium Shareholder Income (PSI) 3-46, 3-47
Pre-settlement Risk 1-4, 1-6—1-8, 1-12—1-14, 3-19
Price Risk 1-5, 1-6, 1-8, 1-9, 1-12, 1-13, 4-1—4-4, 4-6,
4-8, 4-10—4-15
R
Regional Treasurer 2-7, 4-6, 4-7, 4-9, 4-11, 4-13—4-15
Risk Acceptance Criteria (RAC) 2-9, 3-3, 3-4, 3-7—3-9, 3-21, 3-25, 3-26, 3-46
Risk Ratings 3-1, 3-5, 3-9, 3-19, 3-20, 3-23, 3-24, 3-39—3-47
S
Senior Credit Officers 2-6, 2-10, 2-11, 2-13, 2-15
Senior Securities Officers 2-6, 2-10, 2-11, 2-15
Settlement Risk 1-4, 1-7, 1-12—1-14
Systems Risk 1-14, 1-19, 1-20, 1-24
T
Target Market 2-5, 2-9, 3-3, 3-4, 3-7—3-9, 3-11, 3-18, 3-21,
3-25, 3-26, 3-47
Trading Liquidity Risk 1-12, 1-14, 4-4, 4-6, 4-14
Transfer (Cross-border) Risk 1-14, 1-15, 1-16, 1-20, 1-21
Y
Yield Curve 1-9