ERM-STATE OF PLAY: INDUSTRY PERSPECTIVEERM-STATE OF PLAY: INDUSTRY PERSPECTIVE

BYBYHERMAN MULDER, SENIOR EXECUTIVE VICE PRESIDENTHERMAN MULDER, SENIOR EXECUTIVE VICE PRESIDENT

CO-HEAD GROUP RISK MANAGEMENTCO-HEAD GROUP RISK MANAGEMENT

FOR IADI & DELOITTE SEMINAR ONFOR IADI & DELOITTE SEMINAR ONMANAGING RISK MORE EFFECTIVELY THROUGH ERM - SYSTEMMANAGING RISK MORE EFFECTIVELY THROUGH ERM - SYSTEM

BASEL 28 April 2004

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ENVIRONMENTAL SCAN: THE MORNING AFTER!

1. BANKS: RECESSION WELL WITHSTOOD;

2. YET BUSINESS TRUST FACTOR COMPROMISED,

3. RESULTING IN REGULATORY ACTIVITY & ACTIVISM,

4. CAUSING CONFUSION & INCREASED BUSINESS RISK.

5. MULTILATERALISM UNDER PRESSURE, NATIONAL INTERESTS,

6. RESULTING INTO NEW, MORE BALANCED WORLD ORDER; EU, NATO, WTO, UN, IMF, IBRD, ETC.

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ENVIRONMENTAL SCAN: THE PARTY ON THE NIGHT BEFORE………..

1. RECOVERY IN US,GROWTH IN CHINA

2. CONSUMER GROWTH AT LOW INTEREST RATES

3. CORPORATES DELEVERAGING, EM BUILDING UP RESERVES

4. PERCEIVED LOW CREDIT RISKS REFLECTED BY HISTORICALLY TIGHT LOAN-, CDS-, EMBI- SPREADS

5. HIGHLY COMPETITIVE BANKING MARKET: PACE OF THE PLACE

6. CONTINUED DIS-INTERMEDIATION (CDO,CDS, HEDGEFUNDS)

7. ONLY DISSONANT: POLITICS AS DOMINO-FACTOR

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1. ALL TOO GOOD TO BE SUSTAINABLE;

2. ONLY HIGH HANGING FRUIT IN SOUND, PRE-CONSOLIDATION(?), COMPETITIVE BANKING LANDSCAPE, SO:

3. WORST LOANS MADE IN BEST OF TIMES “ DEAL OF YEAR”, DOG TOMORROW

4. OPERATIONAL-, MARKET-, LIQUIDITY-, INTEREST RATE RISKS INCREASING

(SO: STAY LONGER, OR LEAVE THE PARTY TIMELY………: ERM?!)

ENVIRONMENTAL SCAN: THE NEW MORNING AFTER ?

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1. B2 PROCESS AS VALUABLE CATALYST FOR DIALOGUE, LEARNINGAND IMPLEMENTATION OF IMPROVED RM, EVEN BEYOND A-IRB;

2. RESULTS B2 BY DESIGN NOT BEST PRACTICE; “ FUTURE WORK”TO BE INITIATED IMMEDIATELY AFTER TECHNICAL CONCLUSION(INCL. DIVERSIFICATION);

3. CONVERGENCE BETWEEN EC AND RC AS ONGOING AMBITION,

4. BUT ALSO RECOGNITION FROM PRACTICIONERS THAT RISK MANAGEMENT (AS ART) > CAPITAL MANAGEMENT (AS “SCIENCE”),WITH:

5. ERM-APPROACHES ASPIRING CONVERGENCE

LEADING BANKS TODAY:

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1. ERM EC PROJECT COMPLETE MID THIS YEAR:

2. EC FOR FOLLOWING CATEGORIES: CREDIT, COUNTRY/ T&C,OPERATIONAL, MARKET, INTEREST RATE, BUSINESS RISKS;

3. PRIMARY PURPOSE: BU CAPITAL ALLOCATION, PERFORMANCECONTRACT; DIVERSIFICATION BENEFIT TO BU’S ;

4. EC ONLY GUIDELINE/SUPPORTIVE TO RISK MANAGEMENTPROCESSES WHICH ARE BASED ON CLIENT GOOE AND KEYQUALITATIVE FACTORS (KYC, STRUCTURE, DOCS, ETC.)

5. WELL ESTABLISHED GROUP RISK ORGANISATION AND PARALEL APPROVAL PROCESSES: CREDIT-GRC, MARKET-GRC, ALCO,G-ORM, EQUITY UW, ETC. WITH COMMON CFO/CRO CHAIR

ABN AMRO TODAY:

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1. CURRENT CYCLE CLEARLY PROVES THE POINT, AND LOOKINGTHROUGH THE CYCLE, INCLUDING THIS ONE, IS ESSENTIAL;

2. ONLY THE BEST, MOST EFFICIENT, MOST EFFECTIVE WILL SURVIVE;

3. BUT BANKING REMAINS PEOPLES’ BUSINESS, SO SKILLL-, LEADERSHIP-, TEAMWORK- FACTORS ARE AT LEAST AS IMPORTANT AS ERM,

4. FOR WHICH THERE ARE ALSO EXCELLENT ADVISORS, VENDORS,

CONCLUDING OBSERVATIONS (1)

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CONCLUDING OBSERVATIONS (2)

1. ALSO, MARKETS WILL BE SHORT-TERM DOMINATED BY AVERAGE PLAYERS;

2. EP MAY BE KEY DRIVER, BUT REVENUE IS ALSO IMPORTANT THIS YEAR; EP & REVENUE MAY BE KEY THIS YEAR, BUT COMING YEARS’EV IS IMPORTANT TOO.

3. VERY FEW HAD PREDICTED, EVEN CLOSELY, WHAT HAS HAPPENED IN LAST 6 YEARS; SO LET’S BE HUMBLE FOR COMING ONES! (AND WORK ON OUR SCENARIOS & SYSTEMS & SKILLS)