The dramatic fashion in which Bear Stearns and others have gone down in flames brings to the fore issues like counterparty risk management that had previously been undercounted, or not scored at all. The current market realities make implementing a new risk management platform in a hurry highly unlikely, but some banks are finding that their existing risk management platforms can be adapted to track new, or newly important, areas of risk with great efficiency.
Kansas City-based UMB Financial Corp. was in just this position regarding counterparty risk, but executives were relieved to find that the Archer Technologies risk management platform they settled on five years ago could adapt to the new requirement.
"We looked at a number of risk management related solutions when we were going through our due diligence process and it so happened that none really gave us the capability to control our own destiny - they were the kinds of solutions where you had to go to the vendor when you wanted to deal with things," according to Marshall Toburen, UMB's vp of operational risk.
These days the $9.3 billion-asset bank is in the process of setting up a repository of counterparty relationships in order to help gauge overall risk. "What we're trying to use the tool for is to provide a transparent view into our aggregate exposure to any particular counterparty," he says.
The counterparties - which include other banks as well as brokerages houses, mutual funds, and other financial industry firms - would be tracked using a tool that is part of Archer's SmartSuite Framework. "The tool allows you to very quickly extract reports to see relationships or depict those at the dashboard," Toburen says.
Learning how to use the framework to build new interfaces and workspaces took a week in an Archer training class. Customizing reports, producing charts, doing searches, and editing records - are something that anybody can do. "But the process of putting the graph into a framework requires an Archer administrator," Toburen says.
In its current configuration, the SmartSuite tool collects data from a variety of sources and risk control systems and aggregates them to give management a unified view of what's going on at the bank. UMB currently tracks its Gramm-Leach-Bliley compliance using the SmartSuite, as well as SOX, and the platform is also used to handle loss reporting, issues tracking, the bank's IT assets inventory, and various governance-related issues. More than 500 company employees use the platform out of approximately 3,500 employees.
The company tracks both operational and financial risks with the system, Toburen says. Key risk indicators include ones in the areas of credit, interest rates, liquidity, price, reputation, strategic, transaction, foreign exchange, financial reporting, and compliance and litigation.
Today, the data is collected on a monthly basis-someone has to manually download an export file from the individual systems, and upload into the SmartSuite. However, Archer has recently come up with a data feed service that can pull in the information automatically.
It will take a couple of months before the company is using the function, he added. "The tool allows us to cross silos better, so we can pull information from across the company and better depict it on an aggregated basis," Toburen says.
Archer's products have a reputation for flexibility, and the company is know for its responsiveness to users' needs, says Forrester Research analyst Marc Othersen.
"The Archer solution lets you customize your tool to any operating environment," he says. "Most off-the-shelf solutions would force you to do things their way, which might not be the best way for that bank to operate."