15/09/2011

By Scott Thompson

Financial institutions are struggling to calculate market and credit risk in real-time.

That's according to a report by analytics vendor Quartet FS, based on research conducted with senior risk managers from global banking operations. When asked how difficult it is to manage the different types of risk, 68 per cent of respondents think counterparty risk is by far the most difficult type of risk to manage, followed by liquidity (59 per cent) and then credit risk (54 per cent). While market risk is viewed as the least difficult to manage, the research finds that half of all respondents want market risk calculations per new deal to be conducted in under 10 seconds, i.e. true real-time. Yet, at present, only 20 per cent can conduct market risk calculations per new deal in real-time and 40 per cent are only able to conduct the calculations overnight.

The research also finds that the need for real-time calculations is also important for credit risk with nearly a third saying that ideally they would like sub-10 second calculations for Credit: PFE Impact and Credit: CVA Impact per new deal. However, in reality, none of the respondents can calculate Credit: CVA Impact - per new deal in real-time and 79 per cent are still conducting calculations overnight. Similarly, for Credit: PFE Impact - per new deal, only 15 per cent can achieve under 10 second calculations with 55 per cent still processing overnight.

Xavier Bellouard, co-founder at Quartet FS, comments: “If one lesson has been learnt from the experiences of the past few years it is that navigating today’s markets without the ability to understand and manage risk intraday is the biggest risk of all. The business implications of these findings are clear: the majority of financial institutions cannot calculate the true risk of new deals to their business intraday which means that they continue to work with stale, inaccurate data."

"In our experience of working with global financial institutions both before and since the crisis, we have witnessed changes in behaviour with real-time risk intelligence becoming a strategic goal for many financial institutions, particularly within the trading and capital markets arena. Against this backdrop, we have sought to obtain insights and opinions from the people ‘on the coalface’ – risk managers in global financial institutions who are dealing with the question of how best to manage risk within today’s volatile markets every day," he adds.

To view the full report, visit: http://www.quartetfs.com/en/contact/contact