Risk Management at the Top -- Contents -- About the Author -- 1 Introduction -- 1.1 Introduction -- 1.2 Boards -- 1.3 Why Now? -- 1.3.1 Governance Expectations -- 1.3.2 Technical Changes -- 1.4 Rest of the Book -- Further Reading -- PART I RISK OVERSIGHT -- 2 Risk - An Overview -- 2.1 Terminology -- 2.1.1 Definition of Risk -- 2.1.2 Risk -- 2.1.3 Uncertainty -- 2.1.4 Precautionary Principle -- 2.2 Role of Banks and Risk -- 2.2.1 In the Beginning -- 2.2.2 Where are We Now? -- 2.3 Sources of Risk and Uncertainty -- 2.3.1 External Sources of Risk and Uncertainty -- 2.3.2 Internal Sources of Risk and Uncertainty -- 2.3.3 Systemic Risk -- 2.4 Capital -- 2.4.1 Confidence Interval -- 2.4.2 Book Capital -- 2.4.3 Economic Capital -- 2.4.4 Regulatory Capital -- 2.5 Issues to Consider -- Further Reading -- 3 Risk Oversight -- 3.1 Introduction -- 3.2 Perspective -- 3.2.1 Bottom -- 3.2.2 Top -- 3.2.3 Middle -- 3.3 Models -- 3.4 Risk Framework -- 3.4.1 Three Lines of Defence -- 3.4.2 Risk Owners -- 3.4.3 Corporate Risk Management Functions -- 3.4.4 Chief Risk Officer -- 3.4.5 Policies, Standards and Procedures -- 3.5 Biases -- 3.6 Issues to Consider -- Further Reading -- 4 Risk Management -- 4.1 Introduction -- 4.1.1 Definition of Risk Management -- 4.2 Terminology and Components -- 4.2.1 Cause and Effect -- 4.2.2 Exposure and Event -- 4.2.3 Effects and Consequences -- 4.3 Risk Management Cycle -- 4.3.1 Identify the Risk -- 4.3.2 Assess the Risk -- 4.3.3 Evaluate the Risk -- 4.3.4 Manage the Risk -- 4.3.5 Monitor and Review the Risk -- 4.3.6 Escalation and Reporting -- 4.4 Issues to Consider -- Further Reading -- 5 Risk Appetite -- 5.1 Introduction -- 5.2 Terminology and Concept -- 5.3 Stakeholders -- 5.4 Expressions of Risk Appetite -- 5.4.1 Board-level Risk Appetite Considerations -- 5.4.2 Cascading Risk Appetite Down the Firm.

5.4.3 Dynamic Aspects of Risk Appetite -- 5.5 Framework -- 5.6 Risk Reporting -- 5.7 Issues to Consider -- Further Reading -- 6 Risk Culture -- 6.1 Introduction -- 6.2 Terminology -- 6.2.1 Definitions and Descriptions of Risk Culture -- 6.2.2 Expressions of Risk Culture -- 6.2.3 The Individual -- 6.2.4 Groups and Teams -- 6.3 Assessing and Influencing Risk Culture -- 6.3.1 Assessing Risk Culture -- 6.3.2 Influencing Risk Culture -- 6.4 Monitoring Risk Culture -- 6.5 Issues to Consider -- Further Reading -- PART II SPECIFIC RISKS -- 7 Credit Risk -- 7.1 Introduction -- 7.2 Definition of Credit Risk -- 7.3 Framework -- 7.4 Risk Appetite Metrics -- 7.4.1 Simplest Metrics - Credit Exposure -- 7.4.2 Intermediate Metrics - Probability of Default -- 7.4.3 Complex Metrics - Loss Given Default -- 7.4.4 Economic Capital -- 7.5 Credit Risk Management -- 7.5.1 When Things are Running Smoothly -- 7.5.2 When Things are Not Running Smoothly -- 7.5.3 Reducing Credit Risk -- 7.6 Issues to Consider -- Further Reading -- 8 Market Risk -- 8.1 Introduction -- 8.2 Definition of Market Risk -- 8.3 Market Risk Framework -- 8.3.1 Roles in the Framework -- 8.3.2 Risk Appetite and Economic Capital -- 8.4 Market Risk Estimation -- 8.4.1 Simplest Metrics - Exposures and Stop-Loss -- 8.4.2 Intermediate Metrics - Risk Factors -- 8.4.3 Complex Metrics - Portfolio Simulation -- 8.4.4 Economic Capital -- 8.5 Market Risk Management -- 8.5.1 Performance Measurement -- 8.5.2 Back Testing -- 8.5.3 Market Liquidity of Positions -- 8.5.4 Discontinuities -- 8.5.5 Stress Testing -- 8.6 Issues to Consider -- Further Reading -- 9 Operational Risk -- 9.1 Introduction -- 9.2 Definition of Operational Risk -- 9.3 Operational Risk Framework -- 9.4 Operational Risk Estimation -- 9.4.1 Indicators -- 9.4.2 Models -- 9.5 Operational Risk Management -- 9.5.1 Operational Risk Management Objectives.

9.5.2 Sources of Risk Information -- 9.5.3 Operational Risk Focal Points -- 9.5.4 Risk Transfer -- 9.6 Issues to Consider -- Further Reading -- 10 Liquidity Risk -- 10.1 Introduction -- 10.2 Definition of Liquidity Risk -- 10.3 Liquidity Risk Framework -- 10.3.1 Roles in Funding Liquidity Risk Management -- 10.3.2 Cost of Funding -- 10.4 Liquidity Risk Measurement -- 10.4.1 Short Term -- 10.4.2 Very Short Term -- 10.4.3 Long Term -- 10.5 Liquidity Risk Management -- 10.5.1 Overview -- 10.5.2 Stress Testing -- 10.6 Issues to Consider -- Further Reading -- 11 Other Risks -- 11.1 Introduction -- 11.2 Reputational Risk -- 11.3 Strategic Risk -- 11.4 Business Risk -- 11.5 Other Market Risks -- 11.6 Model Risk -- 11.7 Supplier Risk -- 11.8 Resources -- 11.9 Issues to Consider -- Further Reading -- 12 Risk Interactions -- 12.1 Introduction -- 12.2 Risks as Frequency and Severity Drivers -- 12.3 Risk Interactions -- 12.3.1 Credit Risk with a Market Risk Severity Driver -- 12.3.2 Credit Risk with an Operational Risk Severity Driver -- 12.3.3 Market Risk or Operational Risk as the Severity Driver -- 12.3.4 Funding Liquidity Risk with an Operational Risk Severity Driver -- 12.4 Implications for Risk Management and Measurement -- 12.5 Issues to Consider -- Further Reading -- PART III REGULATORY ENVIRONMENT -- 13 Regulatory Environment -- 13.1 Introduction -- 13.2 Structure of Prudential Regulatory Process -- 13.2.1 Mapping the Regulators -- 13.2.2 Impact on Firms -- 13.3 Scope of Prudential Regulation -- 13.3.1 Pillar 1 - Minimum Capital Requirements -- 13.3.2 Pillar 2 - Supervisory Review Process -- 13.3.3 Pillar 3 - Market Discipline -- 13.4 Regulatory Influence -- Further Reading -- Disclaimer Regarding Excerpts from S&P Materials -- Index.