February 17, 2009

Oracle released two new integrated products to help financial institutions comply with Internal Capital Adequacy Assessment Process (ICAAP) requirements under the Basel II accord.

The purpose of Basel II is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

Oracle Reveleus ICAAP Analytics and Oracle Reveleus ICAAP Assessments combine to help firms identify, measure and manage risk and capital across the entire organization, Oracle said.

The solution addresses all major components of ICAAP, including risk assessment, risk monitoring, modeling, stress testing, risk aggregation and allocation as well as regulatory reporting, according to Oracle.

Through a structured analysis of a bank's activities, business units, regulatory and market environments as well as historical scenarios, identified risks are assessed across a combination of factors like size, complexity of instruments, ratings and collateralization, the vendor said.

"This is a two-pronged approach to ICAAP," explains S. Ramakrishnan, CEO of Reveleus and Mantas products, Oracle Financial Services Software.

"One helps institutions identify and assess risks. The idea it caters for is for senior management to be aware of risk in large, complex enterprises. You need to have a formal way of knowing, 'Hey, there's a room dealing with energy trading, did we even know that?' there are methods to assess whether these risks are significant. If so, there are ways to measure them."

The second idea is around enterprise level dashboards and reports, he adds. "You can say, I do have all these risks, this is how I aggregate risk and this is what it means. It gives you interesting transparent insight into how capital is being used in a company and for senior managers to be aware of what is going on. It's a transparency tool."

Further, says Ramakrishnan, firms need to do stress testing and see whether their capital program is appropriate for extreme situations. Firms must ask themselves, "With a severe downturn, will my company remain solvent?"

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in ...