International Business Machines Corp., is stepping up its capabilities to help banks build risk management systems.
The Armonk, N.Y.-based technology company has long had a presence in the risk management field, but the company has broadened its scope by hiring about 100 risk management experts.
It has also combined two of its leading research laboratories to build new software applications for banks. The newly merged group's mission is to develop tools for interest rate risk and valuation of derivatives instruments in the financial markets.
IBM hopes to work with several banks to develop and test these services as its experts create new applications.
"We've taken world-class people and put them together with a commitment to develop some new products in the area of risk," said William Levine, a vice president for banking, finance, and securities at IBM. "We will use the best of IBM's research and the best of IBM's industry skills," Mr. Levine said.
IBM will compete with some of the best-known risk management companies in business, including Price Waterhouse Management Consulting Services, Arthur Andersen & Co., and Coopers & Lybrand Consulting.
The company wants to be an applications developer, systems integrator, and consultant to the banking industry, said Sharyn Kohen, a segment executive at IBM.
The company will also work at developing operational risk management programs that address potential flaws within an institution's management. Its focus on risk follows recent high-profile cases - at Barings PLC and Daiwa Bank - that are seen as illustrating a lack of control at the top levels of management.
"This is our response to what we see as a screaming need in the marketplace," Ms. Kohen said.
In February, IBM licensed object-oriented software from Infinity Technology Inc. of Mountain View, Calif. In object oriented programming, software is put into generic units of computer code that can be used to write custom applications quickly.
IBM's latest move in the risk area was an in-house merger between the Mathematical Analytical Computation Center in New York City, and the math department of its Thomas J. Watson Research Center in Yorktown, N.Y.
The analytical computation center team develops systems that uses mathematical methods for risk management and margin risk. Watson Research Center is building systems for mathematical optimization, data mining, data visualization, portfolio optimization, and risk management.
George Kivel, a bank technology analyst with Tower Group, Wellesley, Mass., said IBM's move into applications development stems from the growing demand among financial companies for new analytical tools and techniques to understand how complex securities products change in value as market conditions change.
Better techniques mean that "banks will able to manage more complex financial products and therefore offer more complex products," he said.
