RMA’s latest market risk survey indicates that most respondents use an electronic system for at least part of their credit approval and limit-management process in financial institutions. An executive summary of the findings will be made available to the public. Detailed survey results were mailed to participants in January.
Philadelphia, Pa. (March 4, 2008)– A survey about Credit Approval and Limit Management Processes in financial institutions was conducted by The Risk Management Association (RMA) in the fall of 2007. The study was developed by RMA’s Market Risk Council, which is composed of senior-level industry practitioners from RMA member institutions.
The Web-based survey, completed by 41 institutions from North America, Europe, Asia, and Australia, is part of an ongoing, long-term effort by RMA to identify best practices and provide an ongoing benchmark to help members understand the evolving nature of their market and counterparty risk exposures. The results of this study will provide the basis for further exchanges of information.
This 61-question survey focused on practices for credit approval and credit limit setting processes for both trading and non-trading businesses. It also explored institutions’ integration of Basel II methodologies into their approaches to credit and limit risk management. Key findings include:
- Approximately 60% of respondents had an electronic system for at least part of their approval processes, leaving 40 % of those surveyed performing this critical function in a manual mode.
- Key variables that differentiated approval processes were Exposure (67%), Product Type (64%), Risk Rating (61%) and Counterparty Type (56%).
- 44% of the banks employ automated limit setting for transactions that meet prespecified criteria.
- In-house resources or combination in-house/vendor were chosen over 82% of the time to build limit management systems.
- A majority of peers allow the reallocation of exposure limits, with 67% permitting reallocation between trading products for the same counterparty.
“In today’s environment, robust credit and limit approvals processes are critical, particularly with regard to counterparties where dollar exposures can be significant,” said RMA President and CEO Kevin Blakely.
“The response to our research effort has been global, making these studies especially valuable,” said Curtis Knight, RMA’s director of Market Risk and Securities Lending.
The detailed final report was issued in January 2008, only to survey participants. It describes the current state of The Credit Approval and Limit Management Processes. It clearly details the most prevalent methods, tools, and decision processes used to determine leading practices. To view the executive summary, please go to www.rmahq.org and follow the market risk link.
Forty-five global institutions based in North America, Europe, and Asia took part in RMA’s last market risk study, “Market Risk Trading Activities and Counterparty Risks.” The 330-page final report provided a benchmark for best practices in trading activities and counterparty credit risk.
Institutions interested in participating in future market risk studies should contact RMA Market Risk Manager Fran Garritt, 215-446-4122.
About RMA
Founded in 1914, The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry. RMA promotes an enterprise approach to risk management that focuses on credit risk, market risk, and operational risk.
Headquartered in Philadelphia, Pennsylvania, RMA has 3,000 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by more than 20,000 risk management professionals who are chapter members in financial centers throughout North America, Europe, and Asia/Pacific. Visit RMA on the Web at www.rmahq.org
Contact:
Meg McBride
RMA Public Relations
215-446-4110