Cordex India - SAS Forum India: Loss Data Consortium

Loss Data Consortium
Name S.RAJENDRAN
Chief Executive
Cordex India

Agenda
Indian Scenario in Oprisk Management
RBI guidelines on Usage of External Data
External Data availability
About Cordex India
Reports to Members
Usage of Reports
Data of other Exchanges

Copyright © 2013 , SAS Institute Inc. All rights reserved.

Indian Scenario of OpRisk Management
Banks are in the process of setting up Policy, System,
procedure on OpRisk Management
Process of RCSA and KRI identification in nascent
stage in many Banks
Data collection is manual and still not reconciled to
the accounting solutions
RBI has notified guide lines for AMA
Data for many ORC not available
Updating of Skills required


Challenges of Indian Banks
Ensuring completeness of Operational Events Loss
Data and capturing from the System
Setting relation of KRI to Loss data
Aggregation of KRI and RCSA for VaR calculation
Creating Scenarios and Modeling of Risk
Developing Documentation in OpRisk identification,
measurement and Management
Pooled Data not in place for Indian Events
Estimation of Correlation among the loss events
Management support and Creating awareness


Challenges of Indian Banks- Data collection
Lack Common and Standard interpretation:
• Allocation of Losses to multiple business lines
• Boundary issues interpretation of OR event in
− Credit Risk
− Market Risk
• Legal Risk reporting
• Defining threshold and Large loss events
• Grouping of Losses of Connected events
• Dates on which OR losses to be captured
• Rapid recovery clarification and uniformity
• Treatment of uncollected Revenue as loss


RBI Guideline on Usage of External Loss Data
Banks to have a systematic and robust process for
Collecting, assessing and incorporating relevant external data
into the ORMS
Determining situation for which relevant external loss data
should be used
Determining the methodologies used to incorporate the
data(e.g scaling, qualitative assessment or enhancing scenario
analysis)
Relevant external data should include data on actual loss
amounts, information on the scale of business operations
where the event occurred, information on the causes and
circumstances of the loss events,
A bank should ensure that the external data used is appropriate,
not affected by reporting bias, and relevant to the business
and operational risk profile of the Bank.


Availability of External Loss Data today
External Loss data of Indian Banks not available
today
Some Vendors and Institutions have set up data
pooling arrangements for Banks on a global basis
from Public data/report from Banks
Scaling the Data, relevance, quality and uniformity in
reporting are issues need to be addressed before
usage
Satisfying the Regulator will be challenge


About Cordex India

Organisation
Governance
Systems and Process
Members
Reports


About Cordex India- Organisation

Data Consortium promoted by 14 Public and Private
Banks
Registered as a Private Company under the
Companies Act
To set up Data pool for OR and Credit Risk
A deemed Government Company and subject to
Audit by CAG
All members have equal share holding


About Cordex India- Governance
Governed by Board where all members have
nominee Directors. IBA has one nominee director.
• All policy decisions and guidance by Board-
Committee of Banks for guidance – Regular meeting
with OR heads
Methodology committee for all matters relating to Risk
• Recommend Standards, Data template, Reports etc
Technology Committee on Systems and process
• To oversee systems setup and Security
Internal committee on Data assurance and Quality
check


About Cordex India- Systems and Processes
Setting a state of Art systems for Data warehousing
Usage of SAS analytics and BI solutions for oprisk.
Secured access by Members –MPLS/Lease line
Ensuring confidentiality of Data by appropriate IT policy
and anonymising data
Setting up Standards for Reporting to arrive uniformity
of Data
Segregated Data collection in OR and OpRisk related
events in Credit for capital provision and control
Descriptive detail of loss collected- to help in KRI/RCSA
bench marking
Large loss analysis


About Cordex India- Shareholder- Members
Andhra Bank Indian Overseas Bank

Oriental Bank of Commerce
Bank of Baroda

Bank of India
Punjab National Bank

Canara Bank Syndicate Bank

Central Bank of India
State Bank of India

ICICI Bank
Union Bank of India

IDBI Bank Vijaya Bank

New non promoter Members are expected to join to comply with
their need for AMA requirements


Cordex- Process

Data validation
Member Banks
Users
and Quality check 3

F

Data
I
Member Banks
Upload
Users
Formats R 2
SAS Server 4
Op Risk Data
1 W Staging
Reports

A
Member Banks
Users L
Web Application Server
L
5

Member Banks Users IBA Loss Data
1. User upload data in specified formats via OpRisk interface Database
2. Respective data is stored in respective staging database
3. Business Validations are applied via the SAS Server.
4. Accepted Records are loaded into IBA Loss Data Database and rejected records are written back to respective Staging database and
notification is raised to respective users for re-uploading the rejected records.
5. Reports are created from DPC Loss Data database and which are published using Web Application Server


Cordex- Reports
Analysis report will include the requirements under AMA
guidelines of RBI- such as
1. Summary - Business line wise and Event type wise up to
level II
2. Trends analysis
3. Causes analysis
4. Geographical classification up to district level
5. Peer bank comparison and bench marking
6. Frequency and Severity analysis with distribution
7. OCR level VaR and aggregated VaR
8. Data for analysing and benchmarking KRI and RCSA
9. Recovery analysis


Usage of Cordex Data
Enable to Prioritize the Risks to be Managed
• Helps Management to focus on actual events particularly high
severity and high frequency
Application for RCSA/KRI
• To Generate new risk profile and KRI
• Can be used as a reference data for RCSA Assessment
Application for Scenarios
• Data source to assessors for assessing scenarios
Application for Validation
Application for Capital(VaR) Measurement


Application for Validation
Validate RCSA performance result by comparing
internal Impact evaluation result with Cordex Data
KRI validation by Comparing with Trend and
Regression analysis of Cordex –whether KRI reflects
actual loss status
Validation of Capital VaR measurement result by
comparing and analyzing effects of distribution of
each cell of Cordex loss data


Application for Capital (VaR) Measurement

Source Data LDA Modeling Data Augmentation Aggregation of VaR of each Cell

Internal
Loss Data Parameter &
Distribution

External Loss Data Loss Distribution &
Consortium Loss Distribution & Parameter
Data Parameter
Combine
(CORDEX) based on Event Event Event
Parameter & Bayesian Type1 Type2 Type7
Distribution theory Dept.1
Public Data Dept.2
Dept.3

Scenario Parameter & Dept.8
Analysis Distribution
Aggregation

Biz. Environment &
Internal Control
Factors


Application for Capital (VaR) Measurement
Objective of LDA

• Augmentation of the insufficient internal loss data, especially for tail events
• Qualitative adjustment of OP VaR

LDA Modeling

Internal

Adjusted

Externa
l

Amount

Expected Unexpected Stress
Loss Loss Loss

Adjusted Adjusted
Expected Unexpected
Loss Loss

Mean (frequency) or mean and quantile (severity) are adjusted to reflect the impact of possible loss
events that never occurred in the bank


4.6 Application for Capital (VaR) Measurement

Internal + CORDEX

Severity Parameter Mean /
Internal Data Frequency Estimation Quantile

Same Distribution

Consortium Severity Parameter Mean / Weighted
Cell Data Frequency Estimation Quantile Average

Scenario Data Severity Mean /
Frequency Quantile

Parameters Integration
for Integration
Adjusted Loss Internal + Consortium
Distribution Scenarios Weighted Internal
Sev & Freq Average +consortium
Distribution


Data of other Exchanges

Sample Data published by

a. Federal Reserve Bank Of Boston

b. Orex


FEDERAL RESERVE BAK OF BOSTON 2006 Number of LDCE Losses
Losses ≥ $10,000 Occurring in Years When Data Capture Appears Stable (annualized)

Corporate Finance 1 2 11 14 23 8 59
Trading & Sales 4 3 30 36 6 44 1,204 9 1,335
Retail Banking 420 6,218 690 811 103 39 2,257 511 11,049
Commercial Banking 9 484 32 65 1 5 254 85 935
Payment & Settlement 96 81 32 7 2 10 549 43 820
Agency Services 1 6 7 57 2 26 830 929
Asset Management 47 19 25 7 335 16 449
Retail Brokerage 11 19 254 606 2 404 36 1,333
Other 76 305 322 73 22 4 634 27 1,462
All Business Lines 619 7,165 1,398 1,693 137 136 6,490 734 18,371
Note: Business line/event type combinations in red indicate more than 1,000 losses; those in yellow indicate less than 25 losses. Business line/event
type combinations that are outlined indicate less than one loss per year. Total number of losses within a business line or event type may be subject to
rounding error (see Appendix I for more detail).


FEDERAL RESERVE BAK OF BOSTON 2006
Total LDCE Loss Amount ($ Millions), Annualized
Losses ≥ $10,000 Occurring in Years When Data Capture Appears Stable
Employ-
Clients, Business Execution,
ment Damage to
Internal External Products & Disruption Delivery & Percent of
Practices & Physical Other Fraud Total
Fraud Fraud Business & System Process Total
Workplace Assets
Practices Failures Mgmt
Safety
Corporate Finance
11.9 0.2 2.2 25.5 0.0 4.2 0.6 0.0 44.7 0.5%
Trading & Sales
8.5 100.9 4.3 370.9 0.3 5.0 238.8 12.9 741.6 8.6%
Retail Banking
35.9 237.3 75.3 346.8 8.8 17.8 316.2 5.6 22.8 1,066.4 12.3%
Commercial Banking
0.6 60.4 2.8 67.2 0.1 0.2 24.1 0.2 3.5 159.2 1.8%
Payment & Settlement
7.2 10.9 2.1 1.0 0.2 1.9 24.1 0.0 4.1 51.4 0.6%
Agency Services
1.3 0.8 1.6 5.5 0.7 1.5 85.5 97.0 1.1%
Asset Management
0.1 1.6 2.1 181.4 0.0 0.7 32.8 0.5 219.3 2.5%
Retail Brokerage
2.2 1.5 28.4 81.0 0.0 22.0 6.0 141.1 1.6%
Other
8.9 25.5 29.6 5,820.5 110.7 38.1 84.9 3.9 0.5 6,122.5 70.8%
Total 6,899.7
76.6 439.1 148.3 120.8 65.3 832.7 10.2 50.4 8,643.2 100.0%


OREX DATA
Distribution of Frequency of Loss by Business Line And Event Type 2004-08

Intern Externa Employmen Clients Executio
al l t Product Disaster Technolog n,deliver Malic
Nos of Events Fraud Fraud Practices & s& s y& y& ious Total % of
Workplace Busines
Safety s Infrastruct Process
Practic & Public ure Manage Dama
es Safety Failures ment ge Total

Corporate Finance 14 154 148 275 17 11 406 0 1,025 0.72%
10.39
Trading & Sales 96 773 558 709 19 786 11,845 0 14,786 %
60.39
Retail Banking 3,843 43,528 8,368 7,797 1,052 1,258 19,875 204 85,925 %
Commercial
Banking 180 4,607 336 2,054 64 265 5,358 5 12,869 9.04%
Clearing 34 709 65 86 3 145 1,324 0 2,366 1.66%
Agency Services 30 310 187 264 17 120 5,941 0 6,869 4.83%
Asset
Management 49 73 183 584 12 90 2,716 0 3,707 2.61%
Retail Brokerage 210 359 701 2,586 12 69 1,701 0 5,638 3.96%
Private Banking 124 408 162 1,637 20 80 2,843 1 5,275 3.71%
Corporate Items 45 260 1,310 300 232 112 924 7 3,190 2.24%
Mutliple Lines 24 162 26 108 17 34 269 3 643 0.45%
142,29
Total 4,649 51,343 12,044 16,400 1,465 2,970 53,202 220 3


OREX DATA
Distribution of Gross Loss by Business Line And Event Type 2004-08

INTER EXTERNA EMPLOYME CLIENTS DISASTE EXECUTIO Maliciou Total % of
NAL L FRAUD NT PRODUCTS RS AND TECHNOL N& s Total
FRAUD PRACTICE & PUBLIC OGY & DELIVERY damages
& Business Safety Infrasctur Process
Workplace e Failures
Safety Practices Management

Corporate 10 624 49 959 1 6 758 0 2,407 5.80%
Finance
Trading & Sales 1,617 1,083 195 1,636 6 115 4,726 0 9,378 22.60%
Retail Banking 774 3,211 1,000 3,503 147 214 3,499 16 #### 29.79%
Commercial 283 1,589 54 1,776 7 158 2,077 0 5,943 14.32%
Banking
Clearing 8 56 10 311 1 22 199 0 606 1.46%
Agency Services 21 32 21 428 5 14 1,021 0 1,543 3.72%

Asset 185 24 89 878 18 10 696 0 1,900 4.58%
Management
Retail Brokerage 139 38 163 651 1 6 210 0 1,209 2.91%

Private Banking 109 253 45 987 2 6 356 0 1,758 4.24%
Corporate Items 69 115 238 437 108 13 654 1 1,635 3.94%
Mutliple Lines 27 386 40 2,051 6 29 219 0 2,758 6.65%
Total 3,241 7,411 1,905 13,618 301 591 14,416 17 4150
1


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