Top 5 Risk Initiatives

Financial institutions have a lot to focus on in the risk department, reports Framingham, Mass.-based research firm Financial Insights. Below are this year's top five risk initiatives according to the firm's in-house experts.

Rank Business Issue/Application Description

1. BIS II The recommendations in the Bank for International Settlements (BIS) capital adequacy directive have forever changed the industry's definition of the goals and methods for managing risk. The immediate impact will be felt across all business units as they learn to absorb new credit processes and operational risk management responsibilities.

2. Credit risk-DP/LGD Credit risk came front and center with the introduction of BIS II, one of the first projects to be tackled. Institutions now are well into implementing these solutions, but because of the size and complexity of this issue, it will remain at the forefront this year.

3. Risk data infrastructure To meet the requirements of increasingly complex risk analyses while complying with new data retention requirements and achieving the next phase of operating cost reductions in 2005 and 2006, firms must have consistent data that can be used across departments.

4. Operational risk Basel II is forcing European firms to understand, quantify and monitor operational risk, while Sarbanes-Oxley is doing the same for U.S. firms. Most recognize that operational risk management tools present a unique opportunity for providing business line staff with more intuitive risk-based guidelines to enhance their business decision making. Improved vendor offerings will help institutions deal with operational risk more effectively.

5. Data sourcing Because risk analytics (along with most statistical analyses) work best when fed with massive amounts of data, risk is very much a game of finding the data. With limited data currently available in areas such as credit and operational risk, firms are continuously looking for new sources of internal and external data to help improve their risk analysis results.

Source: Financial Insights