Introduction

In recent times, pressure from stakeholders and regulators has highlighted the importance of enterprise risk management. Towards this end, several firms have embarked on major restructuring projects. Recent research conducted by Lepus across several industry leaders revealed that, at least within the Capital Markets division, these approaches have been pursued vigorously, but they also vary quite sharply. Whether this extends to the structure of Group Market Risk as well is a point of intrigue.

Key Findings

• Group Level Organisation – As expected, at a vast majority of banks, there is one group head of market risk, to whom various divisional heads report. A small minority of respondents stated that divisional heads also serve as co-heads at the group level.

• Alignment – At the group level, the market risk function is generally organised under one function. This is followed by institutions where this function is aligned to the bespoke nature of market risks e.g. behavioural in ALM and contractual in trading.

• Support Functions – The market risk infrastructure and analytics functions operate centrally for the group at most banks. However, this is closely followed by approaches where the functions are either aligned to asset classes and regions or they cover all risk factors for the group.

• Liquidity Risk and ALM – One may expect liquidity risk to be the responsibility primarily of a group treasury department. While a slim majority of respondents did confirm this to be the case, a comparable number of firms have fused liquidity risk with market risk.

• Counterparty Credit Risk – At most firms, counterparty credit risk formally remains the domain of credit risk. However, several responsibilities, such as exposure management and analytics have been transferred to the market risk department, while credit risk continues to issue limits.

Conclusion

This report clearly highlights the prominence of consolidated management of market risk at the Group level. Most banks have generally achieved this through central management at the Group level, further branching downward into divisions, asset classes and regions. Intriguingly, however, these similarities dissipate when considering areas such as liquidity risk management or regulatory liaison. With time, however, buffeted by the tide of regulation, such variations are expected to give way to greater homogeneity.

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