Bankers Warned of the Dangers When Risk Becomes Uncertainty
At An Evening With gtnews on 20 May, strategies for managing the risks faced in bank treasuries were at the top of the agenda. The event, in association with Infosys, featured presentations from Gerald Ashley, managing director at St Mawgan & Company, and Milind Kolhatkar, the head of Finacle treasury solutions at Infosys Technologies, with the entire spectrum of the banking community represented in the audience.
In his presentation, Ashley outlined the four factors that contribute to operational risk: people, processes, systems and external events (PPSE). The problem that banks face in these areas tends to come from a misunderstanding between risks that can be managed, and uncertainties that can’t. Ashley used life insurance and an example – one person is an uncertainty, but a collection of 10,000 becomes a risk. The problem with the financial industry, according to Ashley, is that banks have been using risk management tools to manage uncertainties, and structured products have been pricing uncertainties as risks.
Following Ashley, Kolhatkar added that uncertainties within PPSE are increasing – external events are a particular example of this. Whereas once, disruptive events such as 9/11 would hit the markets every 50 years, banks now need to prepare for seismic shocks every two or three years, as the past decade has shown. Kolhatkar went on to make the case that technology can and should be used by banks to manage three of the PPSE risks, namely external events, processes, and systems.
For more information on risk management for bank treasuries, watch this gtnews on-demand webinar, in association with Infosys.