applications of external loss data for operational risk with korec

Transcription

APPLICATIONS OF EXTERNAL LOSS DATA
FOR OPERATIONAL RISK WITH KOREC
- Presented by Chong-ho Kim
March 19, 2008
KOREC
Contents
1. About Hana Bank
2. Korea Banking Industry
3. KOREC
4. Applications
KOREC
1
1.1 History of Hana Bank
Hana, for the 36 years, never posted a single loss, never skipped paying dividends
Growth through successful transformational
M&As and operational excellence
Build a Distinctive Platform
to accelerate growth
Realize Synergies
from Consolidation
147 Bn
Premier
Financial
Service
Network
88 Bn
Asset (USD)
1.3 Bn
Hana Bank
Hana Bank
y Established
in 1971
y No. 1
Corporate
Bond
Underwriter
1971 … 1990
KOREC
44 Bn
New
Hana Bank
Hana
Financial
Group Inc.
Hana
Financial
Network
y M&A with
y M&A with
y Appearance
a commercial
bank with a
nationwide
branch network
Boram Bank
y Acquisition of
Chungcheong
Bank
Seoul Bank
y Hana Life
Insurance
Launched
y Korea’s 3rd
largest bank
(asset)
of HFG (2005)
y Korea’s 4th
largest bank
(asset)
y The Best
Private Bank
in Korea
(Euromoney)
y Acquisition of
DI&S
1991
1999
y Converted into
2002
2004
Vision for 2010
World’s Top 100
Financial Group
Quality
Excellence
2008
2010
2
1.2 Financial Highlights of Hana Bank
Highlights
More Information
FY2007

Net Income (Bn USD)

ROE

ROA

Total Assets (Bn USD)
1.40

7,873 Employees
14.45%

752 Branches
1.06%

150.0
12 Branches Overseas
(5 in progress of opening or acquisition)
Credit Ratings
2005
2006
2007
Baa1
A3
A1
Fitch
A-
A-
A-
S&P
A-
A-
A-
Moody’s
Shanghai Branch
Shenyang Branch
Hong Kong Branch
Tokyo Branch
Singapore Branch
Qingdao
International Bank
Major Shareholders
ANGELICA INVESTMENTSPTELTD
9.6%
GSDejakoollc(FDI) PledgeAccount
8.6%
ALLIANZ FINANCEB.V.
4.7%
MSILP-PLEDGEEOR1305
4.2%
KOREC
NY Agency
<< Overseas Network >>
3
2. Korea Banking Industry
2.1 Status of Basel II Preparation
2.2 Periodical ORM Meetings
2.3 Motivation to Loss Data Consortium
KOREC
4
2.1 Status of Basel II Preparation
2002
2004
2005
2006
2007
2008
Jan 2009
AMA
in Korea
“New Basel Accord Plan” established
Basel II Team established
Korea
Financial
Supervisory
Service
(FSS)
Basel II Domestic
Implementation Start-up
Implementation guideline and methodologies
available for Basel II announced
Guideline for AMA
Establishment
1st Version of Detailed Guideline for AMA1) released
2nd Version of Detailed Guideline for AMA released
Regulatory Requirements for AMA
Finalized by the FSS.
New Basel Accord in Korea
Proceeds
Periodical ORM TFT Meeting
established
KOREC Established
Major
Korean
Banks
Risk Mgmt. Business Logic Design
ORM System Implementation
System Stabilization
Approval Process
1) AMA: Advanced Measurement Approach
KOREC
5
2.2 Periodical ORM Meetings
Cooperation and exchanging information between the FSS and major domestic banks are one
of the key features to prepare for AMA in Korean Banking Industry
Korean Banks’ Common Concerns on ORM
KOREC

Ambiguous AMA requirements
by Basel

What would the FSS regulatory
requirements be like?

What is the difference between
ORM and traditional ones?

How do we measure capital with
insufficient loss data?

Is there anybody to help us or
share all these concerns with us?
Rising Needs for Periodical ORM Meetings
Korea
Financial
Supervisory
Service
Basis for
Knowledge &
Regulatory
Experience
Requirements
Sharing
of AMA
6
2.3 Motivation to Loss Data Consortium
Deficiency
Deficiency of
of Loss
Loss Data
Data
Limit
Limit of
of Public
Public Data
Data

①
How to prioritize Risks to be
managed
How to do causation
analysis to elicit
Manageable RIs
How to produce scenarios
How to find distributions &
parameters?
②
③
④
Loss
Loss
Data
Data
Scenario
Scenario
4
KOREC
RCSA
RCSA
1
RI
RI
2
Internal
Internal
Control
Control
3
MeasureMeasurement
ment
Validation
Validation
5
6

Relevant
Relevant &
& Reliable
Reliable
External
External Loss
Loss Data
Data
is
is Needed
Needed
for
for ORM
ORM
Usually more than 1 million
dollars
Could be a benefit to add to tail
losses
Helps scenario evaluation &
scenario creation
However.

Hard to find reliable & relevant
data due to different financial
environments
Scaling problem
Data credibility
7
3. KOREC
3.1 About KOREC
3.2 Competitiveness of KOREC
KOREC
8
3.1 About KOREC
March 2006
January 2006
August 2005
March 2005
f Major Banks Agreed to
share loss data
f Beginning of KOREC
f The Establishment of
the Consortium Policy
and Detail Standards for
Loss Data Collection
f First Assembly of
KOREC (Members
transferred their 2 years
of loss data to the KFB*
for data management
* KFB = Korea Federation
of Banks
• Regulation and systemization for loss data collection process should be established.
Entry
Entry
Requirements
Requirements
• Validation by third parties should be carried out periodically for the loss data and its
collection process.
• Ability to provide at least its two years of loss data that is systematically collected before
entering KOREC.
Member
Member
Institutions
Institutions
Ownership
Ownership
KFB Administrate Data Management Process
Exchange
Exchange
Cycle
Cycle
Quarterly
KOREC
Loss
Loss Amount
Amount
Threshold
Threshold
10 Million Korean Won
9
3.1 About KOREC
Relevant Regulations
Regulations
Regulations of
of
KOREC
KOREC
• Name, Purpose
• Entry and secession of
members
• Responsibility of members
• Roles of the governing body
of loss data
• Organization and Functions of
the committee
KOREC
Specific
Specific submission
submission
criterion
criterion of
of loss
loss data
data
• Data liable for submission,
time of submission
• The lowest amount of
submission
• Basic date of submission
• Specific items of loss data and
• classification criterion
Sanctions
Sanctions criterion
criterion
on
on loss
loss data
data sharing
sharing
• Sanctions criterion
• Suspension of sanctions
Loss
Loss data
data sharing
sharing
computational
computational system
system
design
design document
document
• System operation procedure
10
3.1 About KOREC
Organizational Structure
General Meeting
Board of Directors (BOD)
Committee
Organization
Organization: :ORM
ORMteam
teamheads
headsofofparticipating
participatingbanks.
banks.
Entry
approval,
selection
and
change
of
the
governing
Entry approval, selection and change of the governingbody
bodyofofloss
lossdata,
data,
change
of
regulations
and
approval
requested
by
Committee
of
practical
change of regulations and approval requested by Committee of practicalaffairs.
affairs.
Committee of Practical Affairs
Governing Body of Loss Data
(Korea Federation of Banks)
Organization
Organization: :ORM
ORMstaffs
staffsinincharge
chargeofofloss
lossdata
data
Qualification
examination
of
the
banks,
newly
Qualification examination of the banks, newlyapplied
applied
for
an
admission
for an admission
Decision
Decisionand
andchange
changeofofthe
themethod
methodregarding
regardingloss
loss
data
management
in
practical
ways.
data management in practical ways.
Report
Reporttotothe
thecommittee
committeeofofdecisions
decisionsmade
madeby
bythe
the
committee
of
practical
affairs.
committee of practical affairs.
Verification
Verificationofofthe
thesubmitted
submittedloss
lossdata
data
Analysis
of
the
submitted
data
Analysis of the submitted data
Providing
Providingloss
lossdata
datatotomembers
members
Security
control
Security control
Providing
Providingthe
thedata
data&&standardized
standardized
reports
reports
KOREC
11
Overview
1) Regular
Meetings with
Discussions
4) Analysis
Reports
Competitiveness
of KOREC
2) Loss Data Fields
w/ Descriptions
3) Security
KOREC
12
1) Regular Meetings with Member Banks
① Continuous maintain the consortium policy &
Standard for loss data collection
③ Holding a Workshop for Annual Performances
• Amended the admission criteria & fee
• Supplemented the specific loss data submission
criteria by collecting issues
② Distribute guidelines to Loss Data
Classification Criteria
④ Regular Participation of FSS
• Classification analysis of obscure loss data by
business lines and event types
Discussions
KOREC
13
2) Specific Description of Each Loss Data
Descriptions
of Loss Data
•
•
•
Specific description(s) is included in each loss data of KOREC
Applicable to RCSA, PI, KRI, Scenario, Capital Measurement, Internal Control, etc.
- With the descriptions, each bank can add to their examination tools.
Possible to specify risks by referring to loss event description.
Illu
str
On ativ
ly e
Invisibility
KOREC
14
3) Security
System Diagram
Classification of System Security Area
Members
Members
Korea Federation of Banks File Transmission Proprietary Network
Fire Wall
Loss
Loss Data
Data
Management
Management
Institution
Institution
Loss Data Server
KOREC
15
3) Security : Example
Loss
Loss
Amount
Amount
Encrypted
Encrypted
Data
Data
KOREC
18,000,000 KRW
124, 5, 109, 44, 235, 188, 130, 232
203, 8, 153, 233, 106, 236, 228, 62
16
4) Various analysis Reports
Analysis
Analysis
Reports
Reports
•
9
9
9
9
9
9
KOREC analysis reports include all analysis of :
Number of Events by Business Lines & Event Types
Quarterly Trend ( Based on Discovery Date )
Summary by Business Lines
Summary by Event Types
Summary by Causes of Event Types
Summary of Average Total Loss ( per Event )
• KOREC Distinguished reports include all analysis of :
1) Exposure indicator
2) Frequency & severity analysis with distributions
3) Benchmarks
Illu
str
On ativ
ly e
KOREC
17
4. Applications
4.1 Overview
4.2 Prioritize Risks to be Managed
4.3 Application for RCSA / RI
4.4 Application for Scenario
4.5 Application for Validation
4.6 Application for Capital (VaR) Measurement
KOREC
18
4.1 Overview
APPLICATIONS OF KOREC DATA
1. Prioritize Risks to be Managed
2. Application for RCSA / RI
3. Application for Scenario
4. Application for Validation
5. Application for Capital (VaR) Measurement
KOREC
19
1) Limit of RCSA for Key Risk Awareness
Risk & Control
Assessment
Risk
Risk Owner
Owner
Assessment
Assessment
Assessment Result (By MRC, 2007. 12.)
Limit
•• Assessment
Assessment criteria
criteria
are
different
are different
depending
depending on
on
assessors.
assessors.
•• Not
Not much
much changes
changes of
of
assessment
assessment results
results
Control
Control
Assessment
Assessment
Internal
Internal
Loss
Loss Data
Data
Analysis
Analysis
KOREC
•• Difficult
Difficult to
to estimate
estimate aa
level
level for
for
inexperienced
inexperienced risks
risks
•• Burden
Burden for
for
employees
employees to
to assess
assess
every
potential
every potential risk
risk
20
2) Key Risk Selection of Management Target
• Key risks are needed to be selected as management target focusing on actual events such as internal and
external loss data.
internal·external loss data
F
r
e
q
e
n
c
y
Not management target
High
High Frequency
Frequency
Key
Management
Target
High
High Severity
Severity
Severity
KOREC
21
1) Application for Generation of New Risk Profile and KRI
• To check unrecognized risks
• Application for New product & new RI generation
KOREC Data
Existing risk profile
KOREC
Linkage
Check
9
9
New
Profile
Reflecting New Risk Profile
KOREC
22
2) Used as Reference data for RCSA Assessment
• KOREC data is also used as a reference data when risks and controls are assessed.
Illu
str
On ativ
ly e
KOREC
23
4.4 Application for Scenario
1) Application for Scenario Assessment
• When assessing scenarios, KOREC data is provided to support objective evaluation by assessors.
Scenario Analysis
Business Line :
Reference Risk ID :
Retail Banking
012
Event Type :
Date : 2004. 02
Contact Manager XXX
:
Risk of Embezzling from Clients’ Accounts by Staff
Internal Fraud
Risk Description :
Scenario Type
Typical case
Serious case
100,000,000
5,000,000,000
20,000,000,000
10
>10
Illu
str
On ativ
ly e
Severity
Amount(won) of a loss
event
Frequency
Number of Losses
per Year
One loss every X years
Worst case
3
(X=2~3, 4~5, 6~8, 9~10, >10)
Historical Information
Internal Loss Event
External Loss Event
KOREC
Loss ID : 0352, 2003-10-10, XXX employee withdraw 100 million won and embezzled in XX branch.
Loss ID : 0152, 2003-06-05, yyy employee withdraw 300 million won and embezzled in yy branch.
AAA bank. (Total profit is threefold compared to YYY Bank) : In 2003-12-12, embezzlement of 1 billion won is
occurred by the internal employee in OO branch.
BBB bank. (Total profit is fivefold compared to YYY Bank) : In 2003-02-15, embezzlement of 2 billion won is
occurred by the internal employee in OO branch.
24
1) RCSA Validation
• By comparing and analyzing RCSA impact evaluation result and KOREC Data, it validates RCSA performance
result. : It reviews whether the total loss amount of actual KOREC Data is included in the RCSA impact
evaluation result scope or not.
Example
KOREC Data
1st RCSA result impact in 2007 (Number of person) Inclusion
4
5
Y/N
435 163 21 2
0
○
486 46 76 8
2
×
1
※ In case the total loss amount of KOREC Data is not included in the scope of RCSA impact evaluation result and is underestimated,
it encourages realistic evaluation with the following strategies :
① Adequacy review of risk profile description
② Retraining of employees for assessment method and criteria in case of risk assessment
KOREC
2
3
5 : Seriousness,more than 500 billion
4 : Significance, 100–500 billion
3 : Medium,10–100 billion
2 : Below medium,1-10 billion
1 : Low, less than 1 billion
:Impact level of actual loss amount
25
2) Used for KRI Validation Enhancement – Quantitative Approach
• RI is reviewed by comparison with frequency trend analysis or regression analysis of KOREC data to find
whether the RI reflects actual loss status appropriately.
Internalㆍexternal loss data
KRI status in January, 2007
0.3
0.25
Internal & External Loss
0.2
0.15
0.1
KRI
Dec
Oct
Nov
Sep
Jul
Aug
Jun
May
Mar
Apr
Jan
0
Feb
0.05
0.25
Internal & External Loss
0.2
0.15
KRI
0.1
KOREC
Nov
Dec
Oct
Sep
Aug
Jul
Jun
Apr
May
Feb
Mar
0
Jan
0.05
26
3) Capital (VaR) Measurement Validation
• KOREC data are used for validation of capital(VaR) Measurement result by comparing and analyzing effects
for distributions of each cell of KOREC loss data.
Validation I : Validation of Distribution Selection Algorithm
Hanabank
Data
Distribution
Selection
Algorithm
Lognormal
Poisson
KOREC
data
Distribution
Selection
Algorithm
Gamma
Neg Bino
Same(O)
Validated
Same(X)
Gamma
Neg Bino
Conservati
veness (O)
사건
유형
1
Conservati
veness (X)
New Distribution
Selection Criteria
KOREC Data
Validated
사건
유형
2
사건
유형
3
사건
유형
4
사건
유형
5
Event
type 6
Event
type 7
Distribution
Simulation
GoF Tests
본부7
•
Only, corresponding validation method is performed only in case of business similarities between banks. Banks
본부8
of different business type are excluded.
KOREC
27
Internal
Internal
Loss
Loss Data
Data
LDA Modeling
Data Augmentation
Aggregation of VaR of each Cell
Parameter
Parameter &
&
Distribution
Distribution
Loss
Loss Distribution
Distribution &
&
Parameter
Parameter
External Loss Data
Consortium
Consortium
Data
Data
(KOREC)
(KOREC)
Combine
based on
Parameter
&
Parameter & Bayesian
Distribution
Distribution
theory
Public
Public Data
Data
Loss
Loss Distribution
Distribution &
&
Parameter
Parameter
Event Event
Type1 Type2
...
...
...
Dept.1
Dept.2
Parameter
Parameter &
&
Distribution
Distribution
...
...
Dept.3
Scenario
Scenario
Analysis
Analysis
Event
Type7
Dept.8
...
Source Data
...
Aggregation
Biz.
Biz. Environment
Environment &
&
Internal
Internal Control
Control
Factors
Factors
KOREC
28
Objective of LDA
• Augmentation of the insufficient internal loss data, especially for tail events
• Qualitative adjustment of OP VaR
LDA Modeling
Internal
Adjusted
Externa
l
Amount
Expected Unexpected
Loss
Loss
Adjusted
Expected
Loss
Stress
Loss
Adjusted
Unexpected
Loss
9 Mean (frequency) or mean and quantile (severity) are adjusted to reflect the impact of possible loss
events that never occurred in the bank
KOREC
29
Internal + KOREC
Internal Data
Internal
Data
Severity
Severity
Frequency
Frequency
Parameter
Parameter
Estimation
Estimation
Mean /
Quantile
Quantile
Same Distribution
Cell
Consortium
Consortium
Data
Severity
Severity
Frequency
Frequency
Scenario Data
Severity
Frequency
Adjusted
Loss Distribution
KOREC
Parameters for
Sev & Freq
Distributions
Parameter
Parameter
Estimation
Estimation
Mean /
Quantile
Quantile
Weighted
Average
Mean /
Quantile
Integration :
Internal
+Consortium
+Scenario
Weighted
Average
Integration :
Internal
+Consortium
30
Integration
Integration with
with Internal
Internal Distribution
Distribution
Weighted Average of Means and Quantiles
q = ω q
¾ m = ω m i + (1 − ω ) m e
i
+ (1 − ω ) q
e
Weights
¾ Relative Importance of internal data over external data : Credibility Function
KOREC
31
Internal + KOREC : Example ( Severity )
Bank 1
2
Bank 2
Bank 3
Bank 4
1.8
Bank 5
Bank 0
External
1.6
Ext_Adj
1.4
1.2
1
0.8
0.6
0.4
0.2
0
0
KOREC
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
32
Conclusion
1
Starting
Starting loss
loss data
data consortium
consortium
2
Sharing
Sharing issues
issues between
between the
the FSS
FSS and
and banks
banks
3
Continuously
Continuously refining
refining ORM
ORM system
system
for
for aa more
more practical
practical AMA
AMA implementation
implementation
4
Coordinating
Coordinating Roles
Roles &
& responsibilities
responsibilities with
with internal
internal control
control teams
teams
5
Raising
Raising the
the objective
objective data
data weight
weight for
for the
the measurement
measurement
6
Each
Each bank
bank needs
needs to
to build
build up
up its
its own
own method
method
for
for the
the best
best advanced
advanced measurement.
measurement.
KOREC
33
·Thank you for your time~
Address : (100-050) Hana Bank, 1 Ka, Euljiro, Chung-Ku,
Seoul, Korea
Homepage: http://www.hanabank.com/
E-mail: jonghokim@hanabank.com
TEL : 82-2-2002-2742 / 2002-2743 / FAX : 82-2-2002-1422
KOREC
34