Credit Risk Advantage

A Risk Advantage solution from SAS and Teradata

Credit Risk Advantage – part of the SAS and Teradata Risk Advantage Program – is the only solution that integrates an authoritative, comprehensive data environment for credit risk decision making. The solution’s industry-leading risk analytics meet current requirements, while also providing a framework to support future requirements.

The underlying data model, integrated with the Teradata Risk Data Warehouse, helps corporations consolidate data from disparate sources and supports faster implementation with greater transparency for risk information. As part of the solution, SAS Credit Risk Management for Banking enables financial institutions to quickly and accurately calculate critical risk measures – e.g., credit migration, risk-weighted assets and regulatory capital – from a compliant data environment for risk.

After analyses are complete, customiz-able templates enable reports to be published to the Web, stored as PDFs or integrated within desktop applica-tions. Flexible reporting capabilities enable managers to quickly identify problems and meet regulatory require-ments related to credit risk.

Key benefits

• Flexibility. Allows for system evolu-tion, so you can think big, but start focused.

o Anticipate and respond with agility to future regulatory changes.

o Adjust to local/regional regulations.

o Anticipate future modeling methodologies.

• Integration and Data Governance. Enables seamless integration of your risk data, measurement and reporting systems.

o Integrate SAS Data Integration Studio and SAS/ACCESS® for Teradata technologies for data management and integration with Teradata.

o Seamlessly integrates with other SAS solution components.

• Transparency. Promotes greater transparency and minimizes costs through open systems architecture.

o No hidden system files or black-box models.

o All the data and intermediate steps of calculations can be archived, accessed, audited and validated in the future for supervisory and inter-nal review requirements.

• Minimizes project risk and reduces implementation time. Reduces both implementation time and project risk with predefined regulatory environ-ment and sample reports.

o Reduced implementation time for regulatory requirements.

o A data model, along with predefined analytical and reporting processes.

o Enhanced scalability and perfor-mance.

o A transparent and robust system that documents all relevant data and processes so they can be eas-ily accessed and validated to meet supervisory requirements.

Business Challenges

• Measuring and managing regulatory credit risk requires transaction-level data – which is not always readily available – in order to capture the performance characteristics of each credit in the portfolio.

• Financial services firms must be able to quickly source data for an enterprise data warehouse that can support credit risk at the required level of granularity, as well as myriad other analytical and business challenges.

• Financial services firms need to produce nontraditional credit risk measures – such as RAROC, economic capital or other risk and performance measures – in order to incorporate risk information into everyday decision making.

What does Credit Risk Advantage do?

• Credit Risk Advantage includes SAS® Credit Risk Management for Banking, which provides an integrated, best-of-class solution that supports modern risk management best practices for data management and governance combined with preconfigured risk measure calculations for regulatory and nonregulatory credit risk measure-ment and management.

Why is Credit Risk Advantage important?

• The combined SAS and Teradata solution is the only solution available today that integrates an authoritative and comprehensive data environment for risk with industry-leading risk analytics to provide a flexible credit risk analysis environment that not only meets current requirements, but also provides a framework that will support future requirements, too.

Solution overview

Data model and risk repository

SAS Credit Risk Management for Bank-ing is integrated with the Teradata Enter-prise Data Warehouse (EDW) platform to provide the most efficient, accurate and transparent process for delivering regulatory credit risk measures that’s available from any vendor.

Teradata’s Financial Services Indus-try Logical Data Model (TD FS-LDM) provides a comprehensive framework for an organization’s enterprise data warehousing activities. In addition, SAS Detail Data Store is a comprehensive, banking-specific data model supporting risk management, customer intelli-gence, performance management and compliance solutions from SAS and is supported on Teradata. Predefined ETL bridges provide faster implementation times, reduced project risk and com-prehensive data control, including both metadata and risk data.

SAS Detail Data Store provides a com-prehensive data dictionary and is de-signed to support a broad set of banking business requirements. Implemented in Teradata, SAS Detail Data Store contains all data – including historical – needed to populate the SAS Credit Risk Management for Banking data mart and

SAS Credit Scoring for Banking analyti-cal base tables (ABTs) to support both credit risk and credit scoring, respec-tively. SAS Detail Data Store ensures successful data mapping covering loan, trading, risk factor, parameters and dimensional data to define drill-down hierarchies and counterparty, netting set and customer behavioral data, etc.

The data mart is populated by applying hundreds of predefined SAS data trans-formation routines, which are part of SAS Credit Risk Management for Bank-ing. Together, SAS and Teradata provide an integrated best-in-class offering for risk data acquisition, storage, manage-ment, analysis and reporting.

Data management

The data required by SAS Credit Risk Management for Banking is stored in a Teradata EDW. SAS Data Integration capabilities, optimized for Teradata, provide the solution’s data manage-ment requirements.

Consistent, accurate and reliable data is necessary for achieving best practices in credit risk management. Using SAS Data Integration, the user can efficiently bring together vast quantities of data from across the enterprise – including data from loan capture systems, trading systems, risk factor agencies, collateral management systems, loan decision

systems and parameters from spread-sheets, among others. The data read from the bank’s operational systems is typically structured for specific data models and requires data prepara-tion, cleansing and quality checks in conjunction with being loaded into the warehouse. The interactive, point-and-click SAS Data Integration environment and integrated metadata reduce the need for custom coding, testing and maintenance, which increases busi-ness user productivity and reduces the burden on IT staff.

Regulatory calculations and beyond

SAS Credit Risk Management for Banking supports regulatory credit risk management with predefined meth-odologies and preconfigured reporting capabilities. The solution provides a tabular approach for implementing the Basel II Capital Accord and Capital Re-quirements Directive (CRD) for all three credit risk approaches (Standardized, IRB Foundation and IRB Advanced).

In addition, SAS Credit Risk Manage-ment for Banking can assist with Basel I regulatory calculations based on the risk-weight approach. The solu-tion facilitates regulatory compliance, delivering a standardized workflow to calculate regulatory capital – the cal-culations are data-driven, configurable and extensible. Regulatory analysis is integrated with scenario analysis, stress testing and an optimized risk mitigation algorithm. The underlying risk engine is SAS® Risk Dimensions®.

The solution also enables the use of nonregulatory risk analytics in the same framework as regulatory calculations, enabling banks to take their initial investment to a new level, in contrast with solutions from other vendors that propose additional full modules.

SAS Credit Risk Management for Bank-ing, when implemented with a Teradata

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EDW, provides the flexibility to grow and accommodate future require-ments. Future regulations may allow for applying economic capital models to calculate regulatory capital for credit risk. There may be also be unanticipat-ed data requirements. The combined SAS and Teradata solution provides the flexibility to meet such future needs.

SAS Credit Risk Management for Bank-ing is integrated with other SAS Banking Intelligence Solutions, such as SAS Credit Scoring for Banking, to enable information reuse. In this way, the enter-prise risk function adds value to overall organizational performance manage-ment – e.g., for risk-based customer segmentation, to maximize risk-adjusted rate of return and to migrate from a vol-ume- to a value-based business.

Reporting and regulatory disclosure

SAS Credit Risk Management for Bank-ing offers the full range of reporting capabilities as an integrated part of the SAS Business Analytics Framework.

The Web-based SAS Credit Risk Studio lets users view all of the input and configuration data, and execute SAS Stored Processes for performing ad hoc analysis, creating credit risk reports and interacting with OLAP reports.

The SAS Enterprise BI Server includes a secure, role-based portal that enables personalized interaction with informa-tion. Business users can access aggre-gated information via an easy-to-use, Web-based dashboard. Point-and-click dashboard development lets users cre-ate their own dashboards in just minutes from a variety of data sources, which:

• Enables faster, more efficient decision making.

• Provides enhanced security and reduced IT costs.

• Enables self-sufficiency for users and

more strategic use of IT resources.

Key Features

Risk data infrastructure• SAS Detail Data Store for banking calibrated to reflect bank-specific and regulatory data

requirements.• The Teradata Financial Services Logical Data Model (LDM) is the only integrated data model that

supports retail and commercial banking, brokerage, investment, charge card and insurance.• The Teradata Financial Services LDM, enhanced with credit and market risk management

extensions and business-line functional views, offers firms a blueprint to structure banking organizational data.

• The SAS Risk Reporting Repository to store results and historicize data; the data model incor-porates support for audit.

Risk data management• SAS Credit Risk Management for Banking uses all the power, scalability and wealth of data

management functionality of SAS Data Integration within the SAS®9 platform.• Teradata’s scalable EDW platforms and solutions provide the ultimate analytic foundation. The

parallel RDBMS provides a wide range of data management applications and robust analytic and data mining functions. Together, these capabilities enable organizations to use data in imaginative new ways to gain maximum value.

Regulatory calculations• Facilitates requirements for Basel I. • Basel ll/CRD regulations:

• Delivers IRB capital requirements for the following asset classes: sovereign, bank, corporate, equity, securitization.

• Delivers capital requirements for equity exposures based on: market-based approach, simple risk-weight method and internal models method; Probability of Default (PD)/Loss Given Default (LGD) approach.

• Delivers capital requirements for securitization exposures based on: standardized approach (STD); IRB - Ratings Based Approach (RBA); IRB - Internal Assessment Approach (IAA); IRB - Supervisory Formula (SF).

• Delivers capital requirements for purchased receivables based on: purchased retail receiv-ables; top-down approach; purchased corporate receivables; receivables pool – top-down approach; individual receivables – bottom-up approach. Irrespective of the approach chosen, risk weights for purchased receivables under IRB are calculated for both default risk and dilution risk.

• Supports preconfigured capital calculations for the following transaction types: loans and deposits; repos; securities; forwards; swaps; credit risk mitigants; securitization.

• Supports stress tests.• Supports regulatory netting treatment.• Supports mitigants either by using the optimal allocation algorithms or by using user-specified

rank orderings.• Supports credit risk management across multiple jurisdictions.

Audit and system transparency• System transparency for auditors and supervisors.• Regulatory capital calculation: includes mapping tables that allow users to configure the regu-

latory capital calculations at the bank level. All the mapping tables contain date information defining the time range the mapping information is valid; this functionality delivers a specifica-tion history, which enables the user to fully reproduce past results for audit trail purposes.

• Robust risk reporting: offers a robust SAS Risk Reporting Repository to store referring analysis output. By default, offers audit and historization capabilities.

About SAS and Teradata

SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. Since 1976, SAS has been giving customers around the world THE POWER TO KNOW®. www.sas.com

Teradata is the acknowledged global leader in data warehouse innovation and analytical solution development. Simply put, Teradata solutions make companies smarter and give them the competitive advantage to win. www.teradata.com

Technical Requirements

Integration with legacy systems

SAS Credit Risk Management for Banking easily integrates with legacy systems and third-party data management systems.

SAS release dependency

• SAS 9.2

• SAS Detail Data Store 3.1

Platform availability

• SAS Credit Risk Management server (including the SAS Stored Process Server and the SAS Metadata Server): AIX, HP PA-RISC, HP IPF, Linux 32-bit and 64-bit, Solaris x86, Solaris SPARC, and Windows 32- and 64-bit

• Midtiers: AIX, HP IPF, Solaris SPARC, Solaris x86, Windows 32- and 64-bit

• Clients: Windows 32- and 64-bit Workstations

• Java Web Application Server

o JBoss 4.2

o BEA WebLogic 9.2

o IBM WebSphere 6.1

• Language of Front End – English

SAS Credit Risk Management for Bank-ing facilitates a self-service reporting en-vironment that lets risk analysts respond quickly to inquiries from management and regulators. Based on SAS and Teradata, a bank can implement a risk framework that preserves a business unit’s autonomy while enabling the par-ent bank to roll up risk reports into an integrated, aggregated, groupwide view.

The SAS solution supports aggrega-tion and decomposition of all results, including nonadditive at-risk measures through configurable drill-down vari-ables (cross classifications), which are powered by SAS OLAP technology.

Architecture

SAS Credit Risk Management for Bank-ing is integrated with the Teradata EDW and also includes the SAS®9 Business Intelligence Architecture, which is scal-able to an enterprise level. It includes integration with SAS Foundation Ser-vices, SAS Metadata Server, SAS OLAP Server, SAS Stored Process Server, SAS workspace server and job scheduler.

Additionally, SAS Credit Risk Manage-ment for Banking is integrated with Teradata 12 EDW – which includes high-performance data modeling, storage, and query and reporting ser-vices – supporting stress testing, loan modifications and regulatory capital management.

Audit and system transparency

All regulators and rating agencies that follow the Basel II regulatory approach-es as best practices require regular, independent review of their overall risk management processes, including: consistency, timeliness and reliability of

data; the integrity of risk assessments provided by a bank’s internal systems; and the validation of any significant change in the risk measurement pro-cess, among other things.

SAS Credit Risk Management for Banking does not use any hidden system files or black-box models, thus providing transparency throughout the process. All the data and intermediate steps of calculations can be archived, accessed, audited and validated in the future for supervisory and internal review requirements.

Enterprise Data Warehousing from Teradata

Teradata delivers a complete, single view of your business, allowing you to quickly glean the valuable busi-ness insights needed to compete and win in today’s economy. The Teradata approach provides:

• A single, integrated view of the enterprisewide data needed to make smarter, faster decisions.

• Consistent and accurate data at both the detail and summary levels.

• Parallel database processing that sup-ports nearly unlimited amounts of data and users, as well as simple to com-plex queries and mixed workloads.

• Proven data warehousing technology that is flexible and scalable enough to grow with your business needs.

• The opportunity to avoid the prolifera-tion of costly and inefficient localized data marts.

• A true business partner with the exper-

tise needed to successfully apply SAS

solutions and analytics within Teradata.

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