Fundamentals of Financial Risk Management

MANAGE THE RISK OF NOT KNOWING THE RISKS

Risks within financial institutions are not a trivial matter.

There are several risks related to different business lines, operations, and some even external to the bank or financial institution.

On top of that, these risks evolve continually, with new approaches to measure and manage them.

(An example are the Basel Accords, which evolve over time, requiring a revision of regulatory capital calculations)

You’ll find that most courses on financial risk management are not comprehensive. They don’t cover risks for all activities (from private banking, to trading, retail banking and more), and don’t cover measurement and management of risks for these areas.

Chances are, you can’t really find a course that gathers all existing financial risks in one place, especially up-to-date with the latest Basel regulations.

That is what this course aims to fix.

DE-RISKING YOUR LEARNING

Unlike other courses, which may focus on specific methodologies for risk management, or specific risks, this course aims to be fully comprehensive, covering virtually all types of financial risks, and the strategies to measure and manage them.

And I mean ALL risks!

You’ll find this comprehensive course divided into two main modules:

• You’ll first know about the Risk Categories, where we cover the key risks in financial institutions, with a focus on banks. Credit risk, market risk (including specific risks, such as interest rate risk), and operational risk (with all of its sub-risks, such as people risk, systems risk, cyber risk and more), but also other relevant risks such as trading leverage and liquidity risks;
• Then you’ll find the Banking Risk Regulation module, where we focus, specifically, on the three risks that banks most hold regulatory capital for, under micro-prudential regulation (usually, Basel regulation). We’ll focus on the different approaches to calculate regulatory capital for credit risk, market risk and operational risk, as well as the criteria required to adopt each of the approaches;

LET ME TELL YOU… EVERYTHING

Some people – including me – love to know what they’re getting in a package.

And by this, I mean, EVERYTHING that is in the package.

So, here is a list of everything that this course covers:

• You’ll learn about the essentials of credit risk (both default risk and migration risk), as well as other risks related to credit risk itself, such as concentration risk, default correlation risk, and even contagion risk;
• You’ll learn about credit portfolio management, including the four pillars of robust credit risk management (efficient limits, robust lending processes, efficient quantitative analysis and efficient qualitative analysis), the four main techniques to mitigate credit risk (including loan sales, loan securitisation, loan syndication, and hedging with Credit Default Swaps), and the key terms in credit portfolio management (including PD or Probability of Default, LGD or Loss Given Default, EAD or Exposure at Default, and EL or Expected Loss);
• You’ll learn about the three layers of market risk (general market risk, secondary risk for specific portfolios/groups of positions, and idiosyncratic risk unique to positions), as well as the six key categories of market risk (price movements in equities, interest rates, credit, commodities, currencies, and real estate);
• You’ll learn about interest rate risk in specific, as well as the three main subtypes of it (basis risk, gap risk and option risk), what causes each, and how it’s usually hedged against;
• You’ll learn about the Value at Risk (VaR) methodology to measure market risk, its limitations, variations such as Stressed VaR demanded by Basel III, and the Expected Shortfall (ES) methodology that replaces VaR under the Basel Fundamental Review of the Trading Book (FRTB), as well as the key differences between VaR and ES;
• You’ll learn about other measures of risk that complement VaR, including simple statistical measures such as standard deviation and downside deviation, and other measures related to losses, such as the Months to Earn Back a Loss, the maximum drawdown or maximum drawdown’s months, and percentage of months with losses, among others;
• You’ll learn about operational risk in general, as well as the five key types of operational risk under Basel II classification (internal process risk, people risk, legal and compliance risk, external risk, and systems or cyber risk);
• You’ll learn about the specific types of internal process risk (wrong information, missing information, lack of controls, circumvention of controls);
• You’ll learn about the specific types of systems risk (service interruptions, missing or corrupted information, model risk, and cyber risk in specific), as well as how cyber risk is usually leveraged through hacking (and the multiple approaches to it, including convenience fraud, identity theft, social engineering and phishing, or trojans and viruses);
• You’ll learn about the specific types of people and conduct risk, and usual manifestations (risky trading, product mispricing, interbank rate fixing, sanctioned person transactions, etc), as well as some key causes (employee rotation, misaligned incentive systems, and lack of control function integration/oversight);
• You’ll learn about legal and compliance risk, as well as the specific types of regulation that, when not complied with, can cause sanctions by the regulators, and how banks have a “compliance appetite” parallel to their risk appetite;
• You’ll learn about modeling risk, its two main types (bad models and good models with bad data), as well as measures to hedge against model risk, including the FRB’s SR 11-7 recommendations (model documentation, model validation, and governance over all model policies and practices);
• You’ll learn about trading leverage and liquidity risk. We’ll cover the two types of leverage (borrowing or explicit leverage vs notional or implicit leverage), the role of counterparty risk in embedded leverage for derivatives, and the types of liquidity risk (illiquid assets, large positions of assets, client concentration or position concentration);
• You’ll learn about the different areas of Basel regulation for banks, including how the Basel Accords have evolved to include credit risk, market risk and operational risk, the three main approaches to calculate these risks, and the changes to these approaches over time;
• You’ll learn about the approaches for credit risk regulatory capital calculation, including the Standardised Approach with weights for borrower ratings, as well as the Internal Ratings-Based (IRB) approaches, and the measures that must be calculated by banks in both the Foundation IRB approach and the Advanced IRB approach;
• You’ll learn about the approaches for market risk regulatory capital calculation, including the Standardised Approach with weights for different risks of each asset (and including additional charges depending on the Basel version, such as the IRC or Incremental Risk Charge for credit-sensitive assets and the CRM or Comprehensive Risk Measure for securitised products), as well as the Internal Models approach, historically using Value at Risk (VaR), but with possible changes depending on the Basel iteration (Stressed VaR since Basel III, and replacement of VaR with Expected Shortfall since the Basel FRTB), as well as the requirements to use each;
• You’ll learn about the changes that the Fundamental Review of the Trading Book (FRTB) brings to the calculation of market risk, both in terms of the Internal Models Approach (97.5% Expected Shortfall for 5 liquidity intervals and all trading desks), but also in terms of the Standardised Approach (including changing risk weights to a sensitivities approach, including a risk charge (delta + vega + curvature), a default risk charge and a residual add-on);
• You’ll learn about the approaches to calculate operational risk regulatory capital, including the Basic Indicator approach (a percentage of total gross revenue), the Standardised Approach (specific percentages of gross revenue for 8 distinct business lines) and the Advanced Measurement Approach (by using internal models), as well as the requirements to use each;

MY INVITATION TO YOU

Remember that you always have a 30-day money-back guarantee, so there is no risk for you.

Also, I suggest you make use of the free preview videos to make sure the course really is a fit. I don’t want you to waste your money.

If you think this course is a fit and can take your knowledge of PE to the next level… it would be a pleasure to have you as a student.

See you on the other side!