Press Releases

What Happens Next In Risk Management? SunGard Recommends Three Ways Financial Institutions Can Use IT for Improved Risk Analysis

May 19, 2009 — Wayne, PA

David Rowe, executive vice president, risk management at SunGard Financial Systems, has the following recommendations for risk managers of financial institutions: “Risk analysis needs to be an integral part of strategic decision making, all the way up to the chief executive officer.  To more accurately identify exposure to potential losses before they occur, financial institutions should adopt a macro-oriented approach to risk management. At the same time, financial institutions should also focus on the details behind risk summaries and embrace stress testing.” Click here to view David’s video.

SunGard is helping financial institutions use technology to gain an enterprise-wide view of risk and convert data into actionable information. This gives financial institutions the ability to understand the provenance of risk and make sound strategic business decisions such as how much capital to hold in reserve, where to allocate capital, which hedging strategies to employ and how high or low to set risk thresholds. SunGard also helps financial institutions adopt holistic approaches to enterprise risk and compliance that support both management and governance objectives.

SunGard recommends three ways that risk managers can use technology to improve the accuracy of strategic decision making: 1. use an integrated technology platform to achieve a holistic view of risk; 2. conduct more detailed scenario risk analyses and stress testing to understand the circumstances behind potential losses; and 3. calculation intensive applications should use cloud computing, grid computing and other advanced technology for improved firepower and accuracy.

Key Trends

• Tactical vs strategic decision-making:  risk information used for day-to-day tactical decisions should be extended to support risk analysis required for strategic decisions.
• Holistic risk management: risk exposures across an organization need to be viewed holistically in order to identify concentration of risk: for example, several business silos might hold positions with exposure to US housing mortgages. In isolation, a financial institution could withstand the loss potential to a single business silo, however, taken together, the impact to a financial institution could be catastrophic.
• Stress Testing:  institutions have relied too heavily on basic risk measures like Value-at-Risk; instead they should use more advanced analytics like scenario analyses and stress testing.  Stress tests need to be created in the context of a firm’s risk system with scenarios that would be most injurious given the nature of the firm’s current positions.
• New risk measures will demand more advanced technology:  Fundamentally there is greater demand for added detail, risk data and the ability to do ad hoc inquiries and analyses.  Technology like Software-as-a-Service, grid computing and 64-bit technology can help.

Jeffrey Kutler, editor in chief of Garp’s Risk Professional, said, “A lot of intellectual firepower is being thrown at risk management challenges and a lot of technological firepower as well.  That’s where I think we’ll see a lot of dynamic change in the risk management marketplace and in the risk functions of financial institutions.  It will be in analytics and in the application of technology in new, better and more effective ways.”

Leslie Rahl, founder and president of Capital Market Risk Advisors, Inc., said, “The most important stress testing is stress testing assumptions, correlations and basis relationships.  And I think this will be something that risk managers will be putting more emphasis on going forward.”

Guillermo Kopp, executive director and global research fellow at TowerGroup, said, “SunGard has the competency in risk management and has been extending its technology capabilities in developing the architecture to help financial institutions address these issues.”

Jonathan Berryman, director, credit analytics and portfolio reporting, Standard Bank, said, “There is no doubt that there will and should be a greater focus on risk management, with internal modeling being strengthened and used in conjunction with common sense risk management.  One of the biggest priorities will be the restoration of trust in risk measures used and the widespread adoption of best practice measures.  Standard Bank should be well placed to meet any requirements of new regulations; the flexibility of SunGard’s Adaptiv credit risk infrastructure provides an open architecture on which to build. We will be adding to this with SunGard's Adaptiv Analytics which will provide us with an advanced grid-enabled analytics engine to help us quickly and accurately run stress and scenario testing across our businesses.  This will provide us with a holistic view of our exposures for optimum strategic decision-making."

Pierre Beaudoin, market and insurance risk management advisor at Desjardins Group, said, “SunGard’s Adaptiv Credit Risk allows us to have one consolidated view of our risk across different lines of business to help ensure that we operate with maximum efficiency.”

Links:
Video: Lessons Learned from the Subprime Crisis
Article: Systemic Risk Capital
Whitepaper: Anticipating and Mitigating Catastrophic Risk
Join the Conversation: http://www.sungard.com/whn

About SunGard’s Adaptiv
SunGard’s Adaptiv provides enterprise-wide credit and market risk management and operations solutions for financial services institutions.  Adaptiv assists institutions of varying size and complexity to deploy technology to meet both internal and regulatory requirements for risk management and operational control.  Adaptiv helps financial services institutions from the banking, hedge fund, asset management, insurance and corporate sectors with its deep understanding of risk management and operational processes.

About SunGard
SunGard is one of the world’s leading software and IT services companies.  SunGard serves more than 25,000 customers in more than 70 countries, including the world’s 25 largest financial services companies.

SunGard provides software and processing solutions for financial services, higher education and the public sector.   SunGard also provides disaster recovery services, managed IT services, information availability consulting services and business continuity management software.

With annual revenue exceeding $5 billion, SunGard is ranked 435 on the Fortune 500 and is the largest privately held business software and services company on the Forbes list of private businesses. Based on information compiled by Datamonitor*, SunGard is the third largest provider of business applications software after Oracle and SAP. Continuity, Insurance & Risk has recognized SunGard as service provider of the year an unprecedented five times.  For more information, please visit SunGard at www.sungard.com.

*January 2009 Technology Vendors Financial Database Tracker http://www.datamonitor.com

Trademark Information:  SunGard, the SunGard logo and Adaptiv are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries.  All other trade names are trademarks or registered trademarks of their respective holders.