Risk Management

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table2"> <tr> <td width="780"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td valign="top" align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_crouhy.jpg" width="134" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table4"> <tr> <td colspan="3" width="0%"> <p class="book_title">Risk Management</td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap2"> <area href="../main/ratings.htm" shape="rect" coords="72, 0, 164, 32"> </map> <img border="0" src="../images_title/crouhy23.gif" usemap="#FPMap2" width="215" height="157"></td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> </div> <div align="center"> <center> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" id="table5"> <tr> <td> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </center> </div> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td width="50%" valign="top"> <p class="body_expanded">This is a general introduction to financial risk management within banks. I should emphasize that the focus is banks. While the book has one chapter about risk management in non-bank corporations, it is very much an afterthought. If you don't want to read a couple hundred pages on bank capital regulations, this book is not for you.</p> <p class="body_expanded">The book covers the spectrum of risk management topics within banks, but the coverage is spotty. The book has two real strengths:</p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="125" align="left" id="table7"> <tr> <td width="120"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p class="body"><img border="0" src="../images/bullet.gif" width="20" height="10">Several chapters together provide an informative and detailed discussion of the history and salient features of bank capital regulations. </p> <p class="body"><img border="0" src="../images/bullet.gif" width="20" height="10">The book has extensive information on credit risk measurement—credit analysis and standard portfolio credit risk models, such as KMV or CreditMetrics.</p> <p class="body_expanded">Together, these two features account for 9 out of the book's 17 chapters. If you approach the book as a broad introduction to the regulation and management of credit risk in banks, you will be very happy with the book. The only shortcomings in these aspects of the book that I can identify are that:</p> <p class="body"><img border="0" src="../images/bullet.gif" width="20" height="10">Discussions of credit risk measurement focus on large corporate obligors. Credit scoring for retail or small business lending is not mentioned.</p> <p class="body"><img border="0" src="../images/bullet.gif" width="20" height="10">Aspects of how credit risk can be mitigated are covered in only a cursory manner. Collateralization receives a single paragraph. Netting receives three.</p> <p class="body"><img border="0" src="../images/bullet.gif" width="20" height="10">Potential credit exposure of derivatives is covered only briefly—and then only in a chapter on RAROC!</p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table8"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table9"> <tr> <td class="contents_expanded"> <p class="contents_expanded">1. The Need for Risk Management Systems </p> <p class="contents_expanded">2. The New Regulatory and Corporate Environment </p> <p class="contents_expanded">3. Structuring and Managing the Risk Management Function in a Bank </p> <p class="contents_expanded">4. The New BIS Capital Requirements for Financial Risks </p> <p class="contents_expanded">5. Measuring Market Risk: The VaR Approach </p> <p class="contents_expanded">6. Measuring Market Risk: Extensions of the VaR Approach and Testing the Models </p> <p class="contents_expanded">7. Credit Rating Systems </p> <p class="contents_expanded">8. Credit Migration Approach to Measuring Credit Risk </p> <p class="contents_expanded">9. The Contingent Claim Approach to Measuring Credit Risk </p> <p class="contents_expanded">10. Other Approaches: The Actuarial and Reduced-form Approaches to Measuring Credit Risk </p> <p class="contents_expanded">11. Comparison of Industry-sponsored Credit Models and Associated Back-Testing Issues </p> <p class="contents_expanded">12. Hedging Credit Risk </p> <p class="contents_expanded">13. Managing Operational Risk </p> <p class="contents_expanded">14. Capital Allocation and Performance Measurement </p> <p class="contents_expanded">15. Model Risk </p> <p class="contents_expanded">16. Risk Management in Nonbank Corporations </p> <p class="contents_expanded">17. Risk Management in the Future </td> </tr> </table> </td> </tr> </table> <p class="body_expanded">The book's coverage of other aspects of risk management are disappointing. While value-at-risk receives two chapters, these attempt to cram in too much. The result is a confusing jumble. Liquidity risk is mentioned only in passing. Chapters on operational risk and capital allocation are more conceptual than practical. The authors assume readers are already familiar with concepts such as risk limits and gap analysis.</p> <p class="body_expanded">I recommend this book to two audiences:</p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10">professionals who are just starting out in banking credit risk management. </p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10">anyone interested in an elementary introduction to standard industry models for measuring portfolio credit risk—but who wants an alternative or supplement to the idiosyncratic Saunders and Allen (<a href="../titles/saunders_and_allen_(2002).htm">2002</a>).</p> <p align="center" class="body"> </p> </td> </tr> <tr> <td width="50%" valign="bottom"> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" width="100%" bgcolor="#CCCCFF" height="24" id="table10"> <tr> <td width="100%" align="left"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> <div align="left"> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table11"> <tr> <td width="50%" bgcolor="#FFFFCC" align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table12"> <tr> <td> <p class="body" style="margin-bottom: 6"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/risk_management_credit_institutional.htm">Risk Management - Credit Risk</a></p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/risk_management_credit_institutional.htm">Risk Management - </a> <a target="_top" href="../link_topic/risk_management_capital_allocation.htm"> Capital Allocation</a></p> <p class="bullet_line_space"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/risk_management_general.htm">Risk Management - General</a></td> </tr> </table> </td> </tr> </table> </div> </td> <td>  </td> </tr> </table> </div>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; padding: 0px; border-width: 0px" width="300" height="250" frameborder="0" marginwidth="0" marginheight="0" scrolling="no"> <![if lt IE 4]> <script src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=js" type="text/javascript"> </script> <noscript> <a href="http://servedbyadbutler.com/go2/;ID=147917;size=300x250;setID=93136"> <img src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=img" border="0" height="250" width="300" alt=""></a> </noscript><![endif]> </iframe>   </td> </tr> </table> <p align="center" style="margin-top: 20"> <map name="FPMap0_I1"> <area href="http://www.riskbook.com" shape="rect" coords="0, 0, 184, 29" target="_top"></map> <img border="0" src="../images/open_book_riskbook.gif" usemap="#FPMap0_I1" width="185" height="30"></p> <p class="a" align="center"><font face="Arial" size="2"><a href="../main/disclaimer.htm">disclaimer</a></font></p> <p class="a" align="center"><span class="verdana10">website:</span> <a target="_top" href="http://www.contingencyanalysis.com"> <font size="2" face="Arial">http://www.contingencyanalysis.com</font></a><br> <span class="verdana10">books direct link:</span> <a target="_top" href="http://www.riskbook.com"><font size="2" face="Arial">http://www.riskbook.com</font></a><br> copyright <font face="Times New Roman">©</font> Contingency Analysis, 1996 - current</p> <p class="a" align="center"><map name="FPMap1_I1"> <area target="_top" href="http://www.contingencyanalysis.com" shape="rect" coords="0, 0, 240, 88"> </map><img border="0" src="../images/logo_book_white.gif" usemap="#FPMap1_I1" width="241" height="89"></p>  </body>