type, understanding

Quantify

Impact, knock-ons indirect impact, repercussion continued adverse impact

Avoid: avoid, terminate the business or change strategies or ban outsourcing

keep/retain retain part of the risk under risk appetite

Reduce mitigate: Reduce exposure, reduce frequency of occurrence

Transfer transfer: derivatives, structured products, insurance

Based on economic risk

Regulators stipulate that greater than economic capital

Reduce revenue cash flow volatility

The stock price is stable and attracts investors

Control financial performance

Synergy effect to ensure operation

Derivatives may be cheaper than insurance

Risk type identification error

Error measurement

Difficulty recognizing changes in market structure

devil trader

Management's attention deviates from the main business, resulting in losses

Requires professional skills and knowledge

Compliance costs

Represent the interests of shareholders

independent from management

Shape and oversee the core role of Oversight Risk Management

Responsibilities

CRO

Independent directors, risk experts, provide advice

Members are independent and objective

Ensure financial and regulatory reporting accuracy

Ensure legal, compliance meets best practice standards

independent from management

Should be aligned with the long-term interests of shareholders and stakeholders, based on RAROC

A>0

A=0

A<0

The tangent point between the utility curve and the efficient frontier is the optimal investor portfolio

All investors have been expecting

Risk aversion, maximum utility, rational investor

Same single holding period

Homogeneous expectations

Risk-free interest rate lending

price taker

Information is fully disclosed

No taxes

Investment is unlimited

All assets are tradable

The standard deviation of the return of the actively managed portfolio minus the underlying portfolio

Growth stocks: low book-to-market ratio

Value stocks: high book-to-market ratio

governancegovernance

Data architecture and IT infrastructure

Accurate and true

whole

timeliness timeliness

Adaptability

Confidential, interested parties

Internal culture: process system

External culture: economic cycle, industry regulation, political factors

Dodd-Frank Act stress tests, DFAST, banks over $10 billion

Comprehensive Capital Analysis and Reviews, CCAR, banks above US$50 billion

High defaults, high interest rates

Preferential interest rate teaser rate: The interest rate is low in the first few years, and then the interest rate rises

buy-and-hold

originate-to-distribute, OTD

structured products

Default insurance

Low price mortgage, high price repurchase

haircut, discount part

Accounts receivable, installments as collateral for revolving financing

rollover,repo,ABCP

Use historical data

Data comes from the issuer

No long-term data on subprime loans is available for rating

Rating bias

American Savings and Loan Association the saving and loan, savings and loan crisis

Description: Make money by riding the yield curve, then lose money when the interest rate curve reverses, save the mortgage, and continue to lose money

Warning: To manage interest rate risk, use asset liability management and duration matching tools

During the downturn of the real estate industry, short-term financing and high leverage are still used to develop housing mortgage loan securitization products, which requires extremely fast capital return and tight liquidity.

The business model is too radical, the proportion of high-risk businesses is high and concentrated, derivatives are too innovative, and risk control is weak.

Market information collapses, more collateral is needed, and ultimately bankruptcy

Continental Bank of Illinois

The business is highly concentrated on corporate business, which suffers from the debt crisis of developing countries, huge losses, inability to borrow money domestically, borrowing at high interest rates abroad, exposure to operating difficulties, and bank runs.

The business is too concentrated on crude oil and natural gas, and the financing depends too much on the batch market.

Northern Rock Bank

Relying on inter-bank short-term financing to vigorously develop housing mortgage loans and securitization, it encountered a subprime mortgage crisis and ran on.

Asset Liability Management

Liquidity Stress Test

Emergency Liquidity Cushion

german precious metals

At the same time, holding a short forward position in oil - short, and a long position in oil futures - long, it is theoretically foolproof.

However, the price of oil fell rapidly, and the longs lost money and the shorts made profits. The longs were unable to cash out their profits in time, and the shorts were unable to replenish their margins in time, resulting in a sudden loss of 1.3 billion US dollars.

Dynamic hedging strategies lead to

Changes in accounting standards turn book losses into actual losses

warning

Victor Niederhoff

Profitable from selling deep out-of-the-money options on the S&P 500 without hedging. If the S&P plummets, the margin cannot be replenished in time, and the investor dies.

A business with low profits may suffer huge losses. Excessive speculation should not be allowed. There is no free lunch.

long term capital management corp.

Strategy

You thought there was going to be a comeback, but Russia’s sovereign debt default tells you there’s a basement below the floor

High leverage, insufficient margin, huge losses

warning

london whale incident

JP Morgan Chase conducts massive trade in complex credit derivatives

The risk exposure is too large and exceeds the market’s ability to digest it.

Operational risk: The trading department can manipulate derivatives pricing, reports show fewer losses, and there are differences in derivatives pricing between different departments.

Risk management culture is not in place: internal supervision is not in place

Create a new model to underestimate risks

Proprietary trading should be strictly managed, risk exposures should be monitored in real time, and the impact of transaction scale on the market should be assessed.

Bankers Trust

Helping P&G and Gibson reduce financing costs

Designed complex derivatives, deceived customers, the U.S. raised interest rates, customers suffered losses, was sued, lost, and died.

Communicate rigorously and fully with customers

Unrecovered from reputational risk, acquired

High leverage, borrow short and invest long, invest in complex derivatives, market interest rates are contrary to expectations, huge losses, bankruptcy

Buy Complex Inverse Floating Rate Bonds

Fiscal funds are not regulated and the risk exposure of investments is unclear.

Invested a huge amount of U.S. mortgage-backed securities and died in the face of the subprime mortgage crisis.

Experience scale should match assets and liabilities

Be familiar with the risks of the products you invest in

Barings & Nick Collison

Nick Leeson engaged in unauthorized excessive speculation in interest rate futures and options on the Japanese stock market, created false accounts to cover up his conduct, suffered huge losses, and bankrupted the bank

Long long positions, plummeting, huge losses

Straddle options, profit during hourly index fluctuations, large market fluctuations, huge losses

Trading and settlement positions should be separated, supervision should be improved, excess profits and losses should be paid more attention to, and cash flow that does not meet expectations should be investigated.

Volkswagen emissions scandal

The exhaust gas is only compliant during the test, but fails in actual driving.

Stock price drops by a third, billions of dollars in fines

Enron, financial fraud, and Anxinda's poor audit

Neither corporate governance nor auditing is good.

Introduce Sarbanes-Oxley Act SOX

Society for Worldwide Interbank Financial Telecommunication

hacker attack

Strengthen supervision and strengthen manual intervention for large transactions