131-2009: cibc case study: risk management and sas® tools

©CIBC 2009 All R

ights Reserved

1SA

S Global Foru

m 2009

For what m

atters.

Paper 1

31

-20

09 C

ase Study

Risk M

anagem

ent:

Risk M

anagem

ent:

Usin

g the SA

S Platform

at CIB

CU

sing th

e SAS P

latform at C

IBC

Rick M

illerR

ick Miller

Vice

Vice- -P

resident, C

redit Risk D

ata Solution

sP

resident, C

redit Risk D

ata Solution

sR

isk Man

agemen

t, CIB

CR

isk Man

agemen

t, CIB

C

Financial ServicesSAS Global Forum 2009

©CIBC 2009 All R

ights Reserved

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For what m

atters.

Disclaim

er

Any views, opinions, advice, statem

ents, or other information or

content

expressed or implied in the follow

ing presentation are solely those of the

presenter and do not necessarily state or reflect the views, positions, or

opinion of

Canadian Im

perial Bank of

Comm

erce (CIBC)

or any

of its

subsidiaries or affiliates.


©CIBC 2009 All R

ights Reserved

3SA

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atters.

Today’s Discu

ssion

•A

Brief O

verview of th

e Basel II Fram

ework

•In

creased Spotlight on

Credit R

isk Data

•K

ey Data C

hallen

ges

•Th

e Journ

ey Ah

ead


©CIBC 2009 All R

ights Reserved

4SA

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For what m

atters.

Abou

t CIB

C•

Can

adian Im

perial Ban

k of Com

merce (C

IBC

) is a leading

North

Am

erican Fin

ancial in

stitution

•w

e offer a full ran

ge of products an

d services to almost

11

million

individu

als and sm

all busin

esses, corporate and

institu

tional clien

ts

•A

t year-end (O

ctober 31

, 20

08

):•

Market capitalization

was $

20

.8 billion

•Tier 1

capital ratio was 1

0.5

%•

employed n

early 40

,00

0 em

ployees worldw

ide•

had 1

,05

0 bran

ches in

Can

ada and m

ore than

3,7

00

AB

Ms

•con

stituen

t of the D

ow Jon

es Sustain

ability Index (D

JSI)for seven

consecu

tive years (one of 2

5 ban

ks worldw

ide)

All am

oun

ts in C

$


©CIBC 2009 All R

ights Reserved

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atters.

The B

asel II Framew

ork Goals

Pillar I

Calcu

lation of

Min

imu

m

Capital

Requ

iremen

ts

Pillar IIS

elf-A

ssessmen

t an

dSu

pervisoryR

eview

Pillar III

Disclosu

rean

dM

arketD

iscipline

Credit R

iskO

perational R

iskM

arket Risk

•a global fram

ework issu

ed by Ban

k of Intern

ational

Settlemen

ts (BIS) an

d man

aged by nation

al supervisors

•developed over th

e period 19

99

–2

00

5 w

ith broad

consu

ltation globally alon

g with

quan

titative impact stu

dies

•Th

e Basel II C

omm

ittee Goals w

ere:•

to enh

ance risk sen

sitivity of capital requirem

ents

•greater em

phasis on

banks ow

n assessm

ent of risk

•im

prove transparen

cy for market disciplin

e

•B

asel II was im

plemen

ted Novem

ber 1, 2

00

7 by C

IBC

and

other m

ajor banks in

Can

ada


©CIBC 2009 All R

ights Reserved

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atters.

The B

asel II Framew

ork

Pillar I

Calcu

lation of

Min

imu

m

Capital

Requ

iremen

ts

Pillar II

Self-

Assessm

ent

and

SupervisoryR

eview

Pillar III

Disclosu

rean

dM

arketD

iscipline

Credit R

iskO

perational R

iskM

arket Risk


©CIBC 2009 All R

ights Reserved

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atters.

Distribu

tion of C

redit Risk

Defau

lt Ratin

g

Exposure ($)

Bank A

Bank B

Best

Worst

Corporate

Loan P

ortfolio

•assu

me credit portfolio size is iden

tical for both ban

ksbu

t with

a different m

ix of credit risk

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

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atters.

Previou

s CA

R: N

o Differen

tiation

•U

nder previou

s Capital A

dequacy ru

les, both portfolios

wou

ld require th

e same am

oun

t of min

imu

m regu

latory capital

ILLUSTR

ATIV

E

TotalC

apital

ExposuresC

AR 1

($)

Bank ABank B

Corporate

Loan P

ortfolio


©CIBC 2009 All R

ights Reserved

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For what m

atters.

Basel II: R

isk Sensitive, M

ore Capital

•Th

e strategic implication

is that ban

ks with

riskier portfoliosw

ill have h

igher m

inim

um

regulatory capital requ

iremen

ts

ILLUSTR

ATIV

EA

IRB

Approach

TotalC

apitalC

apital

Exposures

CA

R 1

Basel II

($)

Bank A

Bank B

Corporate

Loan P

ortfolio


©CIBC 2009 All R

ights Reserved

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For what m

atters.

Basel II G

lossary: Credit R

isk Capital

•Th

e Basel II Fram

ework allow

s the u

se of bank-specific

estimates of risk com

ponen

ts in determ

inin

g the capital

compon

ent for a given

exposure:

•P

robability of default (P

D)

•Exposu

re at default (EA

D)

•Loss given

default (LG

D)

•Effective m

aturity

•Firm

-size adjustm

ent for Sm

all Mediu

m En

terprises (SME)


©CIBC 2009 All R

ights Reserved

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atters.

Basel II G

lossary: Credit R

isk Capital

•Expected Loss (EL) =

PD

* EA

D *

LGD

•U

nexpected Loss (U

L) calculated u

sing soph

isticated Basel II

formu

lae incorporatin

g PD

, EAD

, LGD

Loss

Probability of D

efault

Un

expectedloss

Expected loss

99

.9th

percentile

of loss

•m

inim

um

regulatory capital is a fu

nction

of the calcu

lationof u

nexpected loss (U

L) and expected loss (EL)


©CIBC 2009 All R

ights Reserved

12SA

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atters.

Basel II: Th

ree Option

s for Credit R

isk

Standardized

Approach

More Strin

gent Q

ualifyin

g Criteria

More Sophistication and Risk Sensitivity

STAN

DA

RD

IZED A

PP

RO

AC

H

•sim

ilar to existing B

IS’88

•m

ore gradations of risk

•ban

ks can u

se external credit ratin

gs

•som

e capital relief for credit riskm

itigation (e.g., collateral)


©CIBC 2009 All R

ights Reserved

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atters.

Basel II: Th

ree Option

s for Credit R

isk

Foun

dation

Intern

al Ratin

gs B

ased Approach

Standardized

Approach

FOU

ND

ATIO

N IN

TERN

AL R

ATIN

GS

BA

SED A

PP

RO

AC

H (FIR

B)

•based on

intern

al data and risk ratin

gs

•ban

ks use th

eir own

estimates of:

Probability of D

efault (P

D)

•su

pervisors provide estimates for:

Loss Given

Defau

lt (LGD

) and

Exposure A

t Defau

lt (EAD

)

•expected M

inim

um

requirem

ent for

intern

ationally active ban

ks


More Strin

gent Q

ualifyin

g Criteria


©CIBC 2009 All R

ights Reserved

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For what m

atters.

Basel II: Th

ree Option

s for Credit R

isk

Foun

dation

Intern

al Ratin

gs B

ased Approach

Standardized

Approach

AD

VA

NC

ED IN

TERN

AL R

ATIN

GS

BA

SED A

PP

RO

AC

H (A

IRB

)

•based on

intern

al data and risk ratin

gs

•ban

ks use th

eir own

estimates of:

Probability of D

efault (P

D)

Loss Given

Defau

lt (LGD

)Exposu

re at Defau

lt (EAD

)

•com

plex and in

ternation

ally activeban

ks encou

raged to move to th

isapproach

Advan

ced In

ternal R

atings

Based A

pproach

(AIR

B)


More Strin

gent Q

ualifyin

g Criteria


©CIBC 2009 All R

ights Reserved

15SA

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For what m

atters.

Basel II: Th

ree Option

s for Credit R

isk

Foun

dation

Intern

al Ratin

gs B

ased Approach

Standardised

Approach

•B

anks m

ust m

eet broadrisk-qu

antification

standards

for own

estimates of P

D,

LGD

, EAD

•B

anks m

ust h

ave a robust

system in

place to validate the

accuracy an

d consisten

cy of:-

rating system

s, -

processes, and

-estim

ation of all relevan

trisk com

ponen

ts

•Su

pervisor expects all major

Can

adian ban

ks to implem

ent

AIR

B

Advan

ced In

ternal R

atings

Based A

pproach

(AIR

B)


More Strin

gent Q

ualifyin

g Criteria


©CIBC 2009 All R

ights Reserved

16SA

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atters.

Basel II G

lossary: Exposure C

lasses•

un

der the IR

B approach

, banks m

ust categorize ban

king-book

exposures in

to broad classes of assets, specifically:

•C

OR

PO

RA

TE•

SOV

EREIG

N•

BA

NK

•R

ETAIL

•R

esidential Secu

red•

Qu

alifying R

evolving R

etail•

All O

ther R

etail•

EQU

ITIES (non

-traded)

•th

e work h

ere was focu

sed on en

surin

g that th

e identifiers to

classify exposures w

ere available, accurate, com

plete, and

persistent in

the sou

rce data


©CIBC 2009 All R

ights Reserved

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atters.

Basel II G

lossary: Exposure Types

•addition

al granu

larity of reporting u

sing cou

nterparty type

Credit Exposu

resby type for the period ending...

(Canadian $ millions)

Draw

nU

ndrawn

Repo style

transaction

sO

TC

derivativesO

ther

TOTA

L

Residential secured

xxxxxx

xxxxxx

xxxxxx

Qualifying revolving retail

xxxxxx

xxxxxx

xxxxxx

Other R

etailxxx

xxxxxx

xxxxxx

xxx

Corporatexxx

xxxxxx

xxxxxx

xxx

Sovereignxxx

xxxxxx

xxxxxx

xxx

Bankxxx

xxxxxx

xxxxxx

xxx

Total Gross Credit R

isk Exposuresxxx

xxxxxx

xxxxxx

xxx

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

18SA

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atters.

Data M

ainten

ance Focu

s by Regu

lators•

Implem

entation

Note by th

e Can

adian su

pervisor (OSFI),

“Data M

ainten

ance at IR

B In

stitution

s”•

provides general gu

idance on

data main

tenan

ce an

d principles to apply

•su

pervisor will m

onitor on

going data m

ainten

ance

complian

ce

•D

ata Main

tenan

ce Prin

ciples inclu

de guidan

ce on:

•Sen

ior Man

agemen

t Oversigh

t Accou

ntabilities

•D

ata Life-Cycle M

anagem

ent


©CIBC 2009 All R

ights Reserved

19SA

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For what m

atters.

So, Wh

at Is the P

rize?

•regu

latory complian

ce is critical

•for C

IBC

’s mix of bu

siness, u

sing th

e Basel II A

IRB

approachresu

lts in a sm

alloverall reduction

of capital for credit risk

•for lin

e of busin

ess operations, ties th

e allocation an

d use

of regulatory capital to th

e risk profile of the bu

siness

•prom

otes an en

terprise-wide focu

s on th

e importan

ce ofaccu

rate and com

plete risk data

•in

troduces form

al requirem

ents for “back testin

g”an

d“stress testin

g”of ratin

g systems an

d parameter estim

atesto su

pplemen

t and en

han

ce existing practices


©CIBC 2009 All R

ights Reserved

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atters.

CIB

C C

ase Study

•G

etting Started

•D

eveloping P

arameter Estim

ates

•C

alculatin

g Basel II R

egulatory C

apital


©CIBC 2009 All R

ights Reserved

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atters.

CIB

C C

ase Study: W

here W

e Started

•developed a broad u

nderstan

ding of th

e Basel II Fram

ework

requirem

ents

•assessed w

hat already existed, in

terms of:

•P

eople•

Processes

•D

ata•

Systems / tools

•developed a “gap an

alysis”an

d secured sen

ior man

agemen

tsu

pport and fu

ndin

g for projects to close the gaps

•strategy w

as to leverage existing capability, w

herever possible


©CIBC 2009 All R

ights Reserved

22SA

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atters.

•u

se the B

asel II Framew

ork docum

ent to u

nderstan

d and

then

define th

e “man

datory risk data”

•create a logical m

odel to consolidate an

d organise

the data

•determ

ine w

here th

e data exists and iden

tify any data gaps

•en

han

ce systems to collect an

d store the requ

ired data

•h

armon

isedifferen

t data definition

s throu

gh th

e application

of busin

ess logic

•im

plemen

t a data main

tenan

ce framew

ork to inclu

de:•

risk data stewardsh

ip roles & respon

sibilities•

data standards for accu

racy, completen

ess, timelin

ess•

data controls, m

easurem

ent, an

d mon

itoring

•data secu

rity and access

The D

ata Approach


©CIBC 2009 All R

ights Reserved

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atters.

Differen

t Credit R

isk Data C

hallen

gesC

OR

PO

RA

TE, SOV

EREIG

N,

BA

NK

, EXP

OSU

RE C

LASSES

RETA

IL EXP

OSU

RE

CLA

SSES

VIEW

OF

CR

EDIT R

ISKB

orrower-cen

tric(across all org u

nits an

d all produ

cts)

Produ

ct-centric

(hom

ogeneou

s pools)

ASSIG

NM

ENT O

F R

ISK P

AR

AM

ETERS

Assign

ed to each borrow

erA

ssigned to each

pool

EXP

OSU

RE

DIM

ENSIO

NS

Large auth

orization /

outstan

ding balan

ces per borrow

er -m

ultiple facilities

Small au

thorization

/ ou

tstandin

g balances

BO

RR

OW

ER

VO

LUM

EH

un

dreds of thou

sands

Man

y million

s

RA

TING

SYSTEM

SR

equires soph

isticated “risk ratin

g”system

sR

equires less

complex “credit

scoring”

REC

ON

CILIA

TION

: EX

PO

SUR

ES TO G

/LC

hallen

ging across exposu

re classes an

d exposure types

More straigh

tforward


©CIBC 2009 All R

ights Reserved

24SA

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For what m

atters.

Key C

hallen

ges: Credit R

isk Data

•sign

ificant am

oun

t of data is required

•requ

ire nu

merou

s feeds from differen

t kinds of sou

rce system

s

•state of cu

rrent credit risk data

•h

ow to recon

cile credit risk balances origin

ating in

these

disparate systems to th

e Gen

eral Ledger

•system

s constrain

ts / timin

g


©CIBC 2009 All R

ights Reserved

25SA

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For what m

atters.

Wh

at Data D

o We N

eed?

Borrow

er / Gu

arantor

Identity

Risk R

ating /

Scoring M

odels

Basel II C

apitalC

alculation

s

Risk

Weigh

ted Assets

(RW

A)

Param

eterEstim

ates(P

D, LG

D, EA

D)

Econom

icLoss H

istoryExtern

alC

reditA

ssessmen

ts

Borrow

er / Gu

arantor

Ch

aracteristics

ExpectedLoss

Facility Info

Collateral

Ch

aracteristics

Basel II

Exposure

Classes

Borrow

erD

efault

Ratin

gs

EffectiveM

aturity

Credit R

iskM

itigationExposu

res

•decom

pose Basel II Fram

ework clau

ses into “m

andatory”

credit risk data for AIR

B com

pliance

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

26SA

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For what m

atters.

Wh

ere To Look For The D

ata

Credit

Adju

dicationC

reditA

pplication

Fulfillm

ent

and

Operation

s

Mon

itoring

and

Reportin

g

ILLUSTR

ATIV

E

(1) in

itialdata captu

re,verification

,validation

(2) approve

terms an

dcon

ditions

(e.g., limits,

default ratin

gs)

(3) bookin

g,m

anagin

g exposu

res, an

d collateralvalu

e

An

alyze the

Credit R

isk Data Lifecycle


©CIBC 2009 All R

ights Reserved

27SA

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atters.

How

Do W

e Organ

ize The D

ata?

Risk

Calcu

lations

(PD

, LGD

, EAD

)

Risk

Weigh

ted Assets

(RW

A)

Basel II

Regu

latoryC

apital

“Man

datory”C

redit Risk D

ata

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

28SA

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For what m

atters.

How

Do W

e Organ

ize The D

ata?

Risk R

ating /

Scoring M

odels

Risk

Calcu

lations

(PD

, LGD

, EAD

)

Risk

Weigh

ted Assets

(RW

A)

Param

eterEstim

ates

Basel II

Regu

latoryC

apital

“Man

datory”C

redit Risk D

ata

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

29SA

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m 2009

For what m

atters.

How

Do W

e Organ

ize The D

ata?B

orrower /

Gu

arantor

Identity

Risk R

ating /

Scoring M

odels

Risk

Calcu

lations

(PD

, LGD

, EAD

)

Risk

Weigh

ted Assets

(RW

A)

Param

eterEstim

ates

Econom

icLoss H

istory

External

Credit

Assessm

ents

Borrow

er /G

uaran

torC

haracteristics

Basel II

Regu

latoryC

apital

FacilityD

etails

Credit R

iskM

itigation

“Man

datory”C

redit Risk D

ata

Instru

men

tB

alances

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

30SA

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For what m

atters.

Wh

at We Learn

ed Abou

t Ou

r Data

•th

e most ch

allengin

g task was m

apping data

•th

ere was n

o comm

on data m

odel

•th

ere were som

e “data breaks”

•w

e didn’t h

ave granu

lar enou

gh h

istorical data

•data defin

itions w

ere incon

sistent

•as th

e parallel year progressed, we m

easured su

ccess by the

reduction

in th

e use of “defau

lts”for R

WA

calculation

s


©CIBC 2009 All R

ights Reserved

31SA

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For what m

atters.

Case Stu

dy #1

: Param

eter Estimation

Borrow

er /G

uaran

torIden

tity

Risk R

ating /

Scoring M

odels

Risk

Calcu

lations

(PD

, LGD

, EAD

)

Risk

Weigh

ted Assets

(RW

A)

Param

eterEstim

ates

Econom

icLoss H

istory

External

Credit

Assessm

ents

Borrow

er /G

uaran

torC

haracteristics

Basel II

Regu

latoryC

apital

FacilityD

etails

Credit R

iskM

itigation

Instru

men

tB

alances

usin

g Residen

tial Mortgages

as an exam

ple


©CIBC 2009 All R

ights Reserved

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For what m

atters.

Overview

: Param

eter Estimation

•risk ratin

g systems ran

k order the qu

ality of individu

al creditrisk exposu

res and grou

pings of exposu

res

•th

ere are three im

portant dim

ension

s:•

the risk of th

e borrower defau

lting (P

D)

•factors specific to in

dividual tran

sactions to estim

ateth

e econom

ic loss, given defau

lt (LGD

)•

the calcu

lation of exposu

re amou

nt at defau

lt (EAD

)

•th

e estimates for P

Ds

need to be lon

g-run

averages of the

actual on

e-year default rates

•LG

Ds

mu

st be developed from h

istorical losses and recoveries

•th

ese parameters m

ust be good predictors of fu

ture loss even

ts

•ban

ks are expected to reflect conservative estim

ates


©CIBC 2009 All R

ights Reserved

33SA

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m 2009

For what m

atters.

Key C

hallen

ges: Param

eter Estimation

•requ

ired history (at least on

e full econ

omic cycle) n

ot readilyavailable for som

e required attribu

tes

•scarcity of C

IBC

-specific default data (e.g., Sovereign

s, Ban

ks)

•gran

ularity of data n

ot always available

•persisten

ce of key data over time du

e to systems ch

anges

•requ

ires un

ique an

alytical skill sets to build param

eterestim

ation m

odels

•param

eter estimation

models m

ust be in

dependen

tly validated


©CIBC 2009 All R

ights Reserved

34SA

S Global Foru

m 2009

For what m

atters.

Developin

g Retail P

D Estim

ates•

Basel II requ

ires banks to pool retail exposu

res with

similar risk

characteristics an

d estimate th

e Probability of D

efault (P

D)

•each

individu

al exposure w

ithin

the pool th

en acqu

ires the

parameters of th

e pool to wh

ich it belon

gs

Pool1

Pool2

Pool3

Pool4

Pool5

Pooln

Borrower Metrics

Transaction Metrics

Historic P

ortfolio P

erforman

ce Data

Historic Econ

omic D

ata

Pool1

Pool2

Pool3

Pool4

Pool5

Pooln

Borrower Metrics

Transaction Metrics

PD

An

alytic Engin

e:•

determin

es pools•

forecasts PD

for each pool

•revises pools to en

sure

appropriate Capital

•stress testin

g


©CIBC 2009 All R

ights Reserved

35SA

S Global Foru

m 2009

For what m

atters.

Basel II D

efinition

s: Probability of D

efault (P

D)

•P

robability of Defau

lt (PD

) is a measu

re of the likelih

ood of anu

ncertain

futu

re event.

•th

e Basel II R

esidential M

ortgages Exposure C

lass inclu

desm

ortgages for:•

single-fam

ily hom

es, wh

ether th

ey are own

er-occupied or n

ot•

mu

lti-family bu

ildings w

ith m

aximu

m of 4

un

its

•B

asel II definition

of default (clau

ses 45

2-4

53

), either or both

of:•

obligor is past due 9

0 days on

credit obligation to th

e bank

•th

e bank con

siders the obligor u

nlikely to pay credit

obligations in

full

•B

asel II time h

orizon (clau

se 46

6) specifies h

istorical observations

of at least five years

•B

asel II data sources (clau

se 46

4) specifies “ban

ks mu

st regardin

ternal data as th

e primary sou

rce of inform

ation for estim

ating

loss characteristics”


©CIBC 2009 All R

ights Reserved

36SA

S Global Foru

m 2009

For what m

atters.

Creatin

g Pools for R

esidential M

ortgages•

throu

gh an

alysis, we derived the key available risk factors

•w

e pooled mortgage loan

s on th

e followin

g criteria:•

arrears status in

bands, e.g., curren

t, 1-2

9 days delin

quen

t, etc.•

Loan-To-V

alue (LTV

) ratio•

Occu

pancy Statu

s, e.g., rental, ow

ner-occu

pied, etc.

ILLUSTR

ATIV

EIn

ternal

source data

60-89 days delinquent

Current30-59 days delinquent

1-29 days delinquent

LTV <=

0.x

Ow

ner-occupied / m

ixedRental property

LTV > 0.x

Pool APool F

Pool EPool C

Pool DPool B

Poolin

g for Residen

tial Mortgages


©CIBC 2009 All R

ights Reserved

37SA

S Global Foru

m 2009

For what m

atters.

Meetin

g the B

asel II Requ

iremen

ts

To conform

to the B

asel II requirem

ents, w

e ensu

re that:

1.

The pools clearly differen

tiate the P

Ds

(clause 4

01

)•

PD

in on

e pool shou

ld not sign

ificantly in

tersect with

others

2.

Each pool con

tains en

ough

borrowers an

d defaulted borrow

ersto allow

for mean

ingfu

l quan

tification an

d validation of loss

characteristics at th

e pool level (clause 4

09

)

3.

PD

pools display sufficien

tly hom

ogenou

s behaviou

rover tim

e•

subject to policy ch

anges, etc.

4.

If any pool w

ould h

ave a PD

less than

3 basis poin

ts, we assign

the B

asel II floor of 3 basis poin

ts (clause 3

31

)


©CIBC 2009 All R

ights Reserved

38SA

S Global Foru

m 2009

For what m

atters.

Review

ing th

e Historical P

erforman

ce Data

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

39SA

S Global Foru

m 2009

For what m

atters.

Next Steps –

Derivin

g the P

Ds

•for each

Residen

tial Mortgages pool, data w

as analyzed to produ

celow

er quartile, median

, and u

pper quartile valu

es

PD(bps)

Pool IDM

ean PDStd

Min

Max

Adjusted PD

PD

Estimate

Average Balance

A0000.00

0000.000000.00

0000.000000.00

0000.0000.0

B0000.00

0000.000000.00

0000.000000.00

0000.0000.0

C0000.00

0000.000000.00

0000.000000.00

0000.0000.0

D0000.00

0000.000000.00

0000.000000.00

0000.0000.0

E0000.00

0000.000000.00

0000.000000.00

0000.0000.0

F0000.00

0000.000000.00

0000.000000.00

0000.0000.0

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

40SA

S Global Foru

m 2009

For what m

atters.

Next Steps –

Implem

entin

g & M

onitorin

g•

statistical analysis w

as performed to test for:

•m

eanin

gful distribu

tion of borrow

ers across pools•

hom

ogenou

s behaviou

rw

ithin

pools•

trendin

g•

adjustm

ent n

eeded for samplin

g error(s)

•w

e derived our estim

ate of long-ru

n average P

D for each

pool

•w

e tested the accu

racy of our prediction

s

•w

e implem

ented th

e PD

model in

to production

for calculation

of Risk W

eighted A

ssets (RW

A’s) for R

esidential M

ortgages

•w

e mon

itor and an

alyze the observed defau

lt rate over time

against th

e estimate

•reports to sen

ior man

agemen

t high

light perform

ance over tim

e


©CIBC 2009 All R

ights Reserved

41SA

S Global Foru

m 2009

For what m

atters.

Case Stu

dy #2

: Calcu

lating R

isk Weigh

ted Assets

Borrow

er /G

uaran

torIden

tity

Risk R

ating /

Scoring M

odels

Risk

Calcu

lations

(PD

, LGD

, EAD

)

Risk

Weigh

ted Assets

(RW

A)

Param

eterEstim

ates

Econom

icLoss H

istory

External

Credit

Assessm

ents

Borrow

er /G

uaran

torC

haracteristics

Basel II

Regu

latoryC

apital

FacilityD

etails

Credit R

iskM

itigation

Instru

men

tB

alances


©CIBC 2009 All R

ights Reserved

42SA

S Global Foru

m 2009

For what m

atters.

The R

oad to Basel II R

isk Weigh

ted Assets

•m

inim

um

regulatory capital u

nder B

asel II is based on th

ecalcu

lation of R

isk Weigh

ted Assets (R

WA

s)

•R

WA

sare calcu

lated according to establish

ed math

ematical

formu

lae utilizin

g PD

s, LGD

s, EAD

s, and in

some cases,

matu

rity adjustm

ents

•Sou

rcing, processin

g, and recon

ciling data in

order to calculate,

store, and report on

RW

As

for the calcu

lation of m

inim

um

regulatory capital is th

e core of the B

asel II data challen

ge

•Th

e Basel II C

apital Adequ

acy Requ

iremen

ts (BC

AR

) Retu

rnprovides C

anadian

regulators w

ith qu

arterly status on

the

Ban

k’s capitalization in

relation to th

e risks it has assu

med

•In

Can

ada, the m

inim

um

ratio for Total Capital to R

isk Assets

and Total A

ssets is 8%


©CIBC 2009 All R

ights Reserved

43SA

S Global Foru

m 2009

For what m

atters.

Credit R

isk Data A

rchitectu

re Overview

RETA

IL &

WH

OLESA

LEC

RED

ITR

ISK D

ATA

WA

REH

OU

SES

Bu

siness

Ru

les

RW

Acalcu

lationen

gines

Risk

An

alyticsM

odels

Party

Referen

ceD

ata

Credit

Application &

Adju

dication

Accou

nt

Man

agemen

t&

Mon

itoring

Transaction

Systems

External

Ratin

gs

Data Integration Layer (various ETL tools – push/pull)

Business Intelligence Layer

Reports

View

s

Direct

Feed toR

egulators

G/L

Balances &

Hierarch

ies

Economic

Capital

calculation

engin

es

Oth

erA

pplications&

Models

staging areas

ILLUSTR

ATIV

E


©CIBC 2009 All R

ights Reserved

44SA

S Global Foru

m 2009

For what m

atters.

The P

rocess for RW

As

–R

etail Credit R

isk

extract monthly source

data for all retail assetsas at m

onth-end

staging areadata validation

assign retail assets to Basel II Exposure Class

reconcile balances of retail assets to G

eneral Ledger

ILLUSTR

ATIV

E

General Ledger

analytic engine to assignretail assets into pools

reference data

Parameter tables

(PD, LG

D, EAD

)

RW

A calculator enginefor all retail assets andpool sum

maries

creation of BCAR andother regulatory reports

final reconciliation ofall risk assets


©CIBC 2009 All R

ights Reserved

45SA

S Global Foru

m 2009

For what m

atters.

Recon

ciliation To Th

e Gen

eral Ledger

AccountingCode block

Credit R

isk data wareh

ouses

BalanceO

ther Risk D

ata Attributes

Product

Org

BOA

Account

CustGrp

SubAcct

Finan

ce systems

BalanceO

ther Financial Attributes

Product

Org

BOA

Account

CustGrp

SubAcct

•recon

ciliation is requ

ired for all Basel II Exposu

re Classes an

dExposu

re Types (drawn

, un

drawn

, other off-balan

ce sheet)


©CIBC 2009 All R

ights Reserved

46SA

S Global Foru

m 2009

For what m

atters.

Recon

ciliation To Th

e Gen

eral Ledger

AccountingCode block

Credit R

isk data wareh

ouses

BalanceO

ther Risk D

ata Attributes

Product

Org

BOA

Account

CustGrp

SubAcct

Finan

ce systems

BalanceO

ther Financial Attributes

Product

Org

BOA

Account

CustGrp

SubAcct

•recon

ciliation is requ

ired for all Basel II Exposu

re Classes an

dExposu

re Types (drawn

, un

drawn

, other off-balan

ce sheet)

Ch

allenges:

•sou

rce systems are n

ot un

ique by B

asel II Exposure C

lass•

ensu

ring accu

rate booking of tran

sactions across m

ultiple source

systems


©CIBC 2009 All R

ights Reserved

47SA

S Global Foru

m 2009

For what m

atters.

An

alysis and R

eporting

•m

ultiple bu

siness stakeh

olders have regu

latory and

man

agemen

t reporting n

eeds for credit risk data

•R

egulators requ

ire specific credit risk reports quarterly,

due 3

0 days after fiscal qu

arter-end:

•B

CA

R (B

asel II regulatory capital)

•N

CR

(new

credit risks)

•B

oard of Directors an

d senior m

anagem

ent oversigh

t

•Lin

e of Bu

siness A

nalysis of:

•exposu

res, risk calculation

s (e.g., EAD

, EL, RW

A, etc.)

•risk profiles -

OD

R/LG

D distribu

tions, etc.

•portfolio m

etrics –geograph

ic, indu

stry, etc.

•P

erforman

ce measu

remen

t of risk analytics m

odels forcon

tinu

ous im

provemen

t


©CIBC 2009 All R

ights Reserved

48SA

S Global Foru

m 2009

For what m

atters.

SAS P

latform for R

etail Credit R

isk

staging areasB

usin

ess R

ules

Risk

An

alyticsM

odels

Party

Referen

ceD

ata

Credit

Application &

Adju

dication

Accou

nt

Man

agemen

t&

Mon

itoring

Transaction

Systems

External

Ratin

gs

Data Integration Layer (various ETL tools – push/pull)

Business Intelligence Layer

Reports

An

alytic Cu

bes / Marts

Direct

Feed toR

egulators

G/L

Balances &

Hierarch

ies

Oth

erA

pplications&

Models

RW

Acalcu

lationen

gines

SAS

DI S

tudio

SAS

Enterprise G

uide

SAS

Enterprise M

iner

SAS

Risk D

imen

sions

ILLUSTR

ATIV

E

Economic

Capital

calculation

engin

es

RETA

ILC

RED

ITR

ISK D

ATA

WA

REH

OU

SE

SAS

OLA

P

Studio

SAS

Enterprise G

uide


©CIBC 2009 All R

ights Reserved

49SA

S Global Foru

m 2009

For what m

atters.

Sum

mary

•u

nder B

asel II AIR

B, a ban

k will be able to self-assess an

d report m

inim

um

regulatory capital for credit risk

•approval an

d ongoin

g complian

ce is dependen

t upon

banks

demon

strating th

e integrity of th

eir risk rating m

ethodologies

and data u

sed to calculate regu

latory capital

•sen

ior man

agemen

t has accou

ntability for establish

ing an

dm

onitorin

g the en

terprise-wide observan

ce of the risk data

man

agemen

t framew

ork

•th

e “payback on th

e Basel II in

vestmen

t”com

es from th

e u

se of the n

ew regu

latory capital inform

ation for bu

sinesses

to more effectively m

anage risk


©CIBC 2009 All R

ights Reserved

50SA

S Global Foru

m 2009

For what m

atters. Wh

ile we are w

ell on ou

r way

at CIB

C, th

e journ

ey contin

ues…


©CIBC 2009 All R

ights Reserved

51SA

S Global Foru

m 2009

For what m

atters. Than

k You

Than

k You

contact:

contact: rick.m

[email protected]

rick.miller@

cibc.ca


131-2009: cibc case study: risk management and sas® tools

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