WHAT'S NewS Issue 4 ApriM 996
working relations
13
widening the scope of these systems so
that they apply to include all types of
market risks: from equities to currency to
interest rate fluctuations. The overall
framework for this new policy - covering
the issues to be considered, the various
classes of risk to be described, plus the
best methods to define trading limits, and
to integrate all of these considerations into
actual operating procedures - was
formulated with the help of the
management consultants KPMG.
MANAGING LOGISTICS
A rewriting of all of the different risk
policies within the Rabobank group to
conform to this KPMG recommendation
is now underway. Some 25 bank officers
have been assigned to implement these
policies at headquarters in Utrecht, with
between one and four people involved at
each of the large foreign affiliates.
Meanwhile, the Canadian software house
Algorithmics is implementing its Risk
Watch market risk modules to meet
Rabobank's management information
needs. Effective information 'logistics' -
which involves extracting relevant
information about risk from internal
computer systems and making sure that it
arrivés at the right place at the right time -
MARKTRISICO
CONCEPT
Binnen het CBB wordt
hard gewerkt aan de
implementatie van een nieuw marktrisico
management concept. Hiermee kunnen de
steeds complexere risico's waarmee de bank
geconfronteerd wordt in kaart worden
gebracht. De bank speelt hiermee in op de
nieuwe richtlijnen ten aanzien van het
eigen vermogen van de bank als op de
eisen van de conventie van Bazel, die begin
1998 van kracht worden. Alle marktrisico's,
van aandelen- tot valuta- en rentefluctua
ties worden binnen dit systeem op unifor
me wijze in kaart gebracht.
will be crucial to the new concept's overall
success. 'This is not merely about new
systems,' says Schalij. 'It is also about how
to organize the new regime, which people
should be involved, what should be the
lines of reporting and control. In fact, it's
primarily a cultural change that requires a
change in behaviour.
PHASING IN
Both Rabobankers observe that although
it's easy to announce a new system, it is
another thing to apply it effectively. 'These
sophisticated new methodologies will
consume both time and human resources,'
explains Bruggink. 'The long-term
interests of the bank make it essential that
everyone gets involved in this process,
even if there is no short-term benefit for
the sometimes considerable investments
required.' Complicating matters somewhat
is the fact that the new risk management
concept is being phased-in in two steps.
This reflects the stringency of regulatory
requirements in Holland. All Dutch banks
are being required to first comply
with CAD this year, and then with Basle in
1998, unlike many foreign competitors
who are preparing to move directly into
the Basle regime. Practically speaking, this
means that one set of analytical tools is
now being put into place to meet the
capital adequacy directive - hut they will
actually only be used to produce six
quarterly reports before they are scrapped
once the Basle requirements, and a new set
of measurement tools, come into effect at
the end of 1997. 'This strikes us all as a
somewhat confusing use of resources,'
Schalij concedes with an eye towards the
central banks' rule books. However, 'we
must try to make the best of this
situation.'
Willem van Duijn, Senior Vice President
within this important unit which is headed
by Evert van der Stroom. 'Our job is not
only to help advise on strategy, and
understand the methods used to
implement it, but also to step back and
decide whether the whole process is
wvorking as efficiently and effectively as it
"hould. Are the analysis methodologies
correct? Is information moving smoothly?
Can we be sure the data are accurate?
Because people who are working within
the relevant divisions or in the foreign
offices necessarily have quite different and
more immediate priorities, there is great
need for an operational auditor who can
survey the landscape overall.'
FUNCTIONAL EXPERTISE
To help in its task, the audit department is
divided into several areas of functional
expertise. The division under Van Duijn
audits the international operations, the
headquarters in Utrecht and the
subsidiaries in Holland (except for the
domestic member banks - which are
audited by separate arms). It also has a
^fccondary responsibility for auditing the
^ffmual financial accounts of the
Rabobank group. An EDP audit unit
specializes in evaluating electronic data
processing systems and, finally, the Credit
Audit unit is devoted to credit risks.
REFORMULATING CONCEPTS
These units act singly and in combination
to evaluate the quality of the whole risk
management system and its various
subsystems and deliver their assessments
and recommendations for change directly
to top management. As reported in the
last edition of What's NewS, risk
management procedures at Rabobank are
now undergoing a major strategie review.
The Audit Department has been intimately
involved in reformulating the new risk
management concept. Needless to say, in a
more turbulent market climate the success
of this effort will hinge on whether the
new system can be made as robust as
possible. Management and members of
the audit department are mindful that - as
English Prime Minister Benjamin Disraeli
once said - 'what we anticipate seldom
occurs; and what we least expect is what
generally takes place.'
DYNAMIC REALITIES
'With our experience with earlier systems,
we are in a unique position to help in
strategy and design,' says Eef Staring,
Senior Audit Manager within the
Department. 'We have involved ourselves
in this process from the very start so as to
avoid the necessity of having to come back
and recommend corrections after the fact.
Apart from helping formulate and
implement this strategy, the 200-strong
Department is concerned with all-
important specifics of operational
execution. By overseeing every phase of
the management cycle, the Audit
Department insures that the formal
systems reflect the dynamic realities. In
that alchemical procedure called banking,
the audit function helps to insure that the
ingredients of risk are transformed into
profit at the bottom-line.
INTERNE
ACCOUNTANTS-
DIENST
Een van de taken van de
Accountantsdienst is het continu in de gaten
houden van de - krediet-, markt- en opera
tionele - risico's die de bank loopt. Het is een
proces van continu meten en controleren en
zo nodig de procedures aanpassen. Als
onafhankelijke afdeling krijgt de Accoun
tantsdienst zo een goed totaaloverzicht.
Zij rapporteert rechtstreeks aan de Hoofd
directie. Uiteraard is de dienst vanaf het
begin ook nauw betrokken bij het nieuwe
marktrisico concept, zodat dit niet achteraf
aangepast hoeft te worden. De goede
werking van het systeem komt met name
aan de orde als markten turbulenter worden.
Door de hechte samenwerking hebben alle
partijen er echter alle vertrouwen in.
