Basel II is changing the way financial institutions look at operational risk, according to a recently released whitepaper by McLean, Va-based business consulting firm BearingPoint. By formally introducing operational risk into risk management and capital calculation, Basel II is moving top-tier institutions to explicitly identify, measure and report information related to operational risk. In order to maintain a competitive edge, smaller banks, like New York-based Calyon Americas are also following suit. "The Federal Reserve is ... requiring several of the large banks -- those with greater than $250 billion in assets or more than $10 billion in international assets -- to comply with Basel II," explains Bjorn Pettersen, a managing director at BearingPoint and author of the report. "That's only ten banks, but all the other banks are assuming they have to comply [in anticipation of] mergers or further legislation, so they're opting in."
Calyon Americas, the corporate and investment division of French bank Credit Agricole, had Basel II in mind when it decided to implement RiskResolve 4.0, an operational risk management (ORM) solution that was formally released Monday by Nashua, New Hampshire-based software provider Providus. "Clearly with regard to Basel II ... financial institutions need to be very closely monitoring their operational risk and the losses associated with control deficiencies," says Bob Angarola, Calyon Americas' managing director and chief internal control officer. Calyon began implementing the ORM solution in January 2005 and has been in production since early March.
Angarola says one of the main reasons for choosing Providus solution was a built-in loss data module that now enables the bank to monitor losses as they occur. And although the firm considered twelve other applications (all of which Angarola declines to name), RiskResolve 4.0 was the only system that allowed the firm to generate the same type of loss data reporting the bank was already periodically providing to its head office in Paris. "The other applications had loss data capabilities ... [but] what we needed was an ability within a system to generate the kind of reporting that would minimize the amount of duplication we'd have to do," Angarola says.
Another selling point for Calyon is the system's user-friendliness. "The 75 to 100 people that will be mitigating and controlling risks on this system are at the highest level within our organizations," he explains. "If we want people that are in the management-committee or executive-committee level monitoring risks, then we have to minimize the amount of time that they're actually going to be sitting there and doing that, while still getting the maximum for their efforts." The solution's multiple pop-ups and drop-down menus walks users through various requirements as an objective, risk, control or action is being loaded into the system. This enables senior managers to go into the system and view issues, control problems and generate reports without any intervention from a programmer. "We can now load a risk, a control and the actions associated with it in a matter of minutes, where in the past it could've taken us ten times longer to do," Angarola says.