CoBank joins the ranks of forward-thinking banks that are measuring risk on an enterprise-wide basis, and linking these risk measures to required (economic) capital. ERisk's groundbreaking model enables CoBank to measure and aggregate all risks - credit risk, asset/liability mismatch risk, market risk, and operating risk. ERisk's approach incorporates world-class analytics licensed from Oliver, Wyman & Company, the leading management consulting firm specializing in financial services.

Paul Kern, Vice President of Risk Management at CoBank, says the bank expects to benefit in many ways, from improving its portfolio risk management and identifying credit concentrations, to assessing the profitability of business lines and pricing risk into individual projects and products.

"At CoBank, we already have a risk management mentality, and believe we understand our risks," Kern says. "But developing complicated, enterprise-wide models in-house isn't practical for us. Through ERisk we obtain access to expertise, models, and personnel along with a set of benchmark data that's been tested over time. Together, with the application service provider model, it fit our needs and situation," he added.

The Application Service Provider model means that the bank will be able to feed updated sets of risk data into a robust enterprise-wide risk management model built and maintained by ERisk. According to Kern, CoBank's shift towards a more robust economic capital methodology will help it maintain a leadership role within its banking niche.

The ERisk solution should also help the bank manage the credit risk in its portfolios even more effectively. According to Doug Wilhelm, Vice President of Risk Management, CoBank is one of the largest lenders to agribusiness and rural America and provides significant financing to a relatively narrow customer base such as agricultural cooperatives and food-processing companies. "Although we lend large amounts to individual companies our relatively small customer base requires us to look outside our own historical experience when we want to relate our internal credit scores to statistically derived probabilities of default and loss. The new framework has helped us transform our relative credit scores into hard numbers and analytical models necessary for calculating its risk-adjusted return on capital."

This more sophisticated approach also fits in with the latest proposals by the Basle Committee on Banking Supervision for the reform of bank capital adequacy rules. The proposals, which are being finalized over the next few months, have encouraged many banks to re-examine their internal credit ratings process - and to explore how to calibrate credit scores against statistical measures of default risk and public credit ratings. Banks that might want to use their internal credit ratings for capital allocation will be expected to use the same process throughout their risk management and decision-making processes.

According to Peter Nakada, Vice President of Business Development at ERisk, CoBank was the ideal customer for ERisk's new analytics product offering. "The bank had a clear desire to begin measuring their risks on an enterprise-wide basis. Working in close partnership with CoBank's leadership team, we were able to achieve our goal of producing results in a short two month timeframe. CoBank's senior managers are already using these results as inputs to their business strategies and critical decision-making."

About CoBank

CoBank is an internationally recognized cooperative bank that has been lending to some of America's most successful businesses since 1916. It is part of the $91 billion Farm Credit System, the largest lender to US agriculture and rural America. It specializes in cooperative, agribusiness, rural communications and energy systems, offering a broad range of flexible financial solutions and leasing services. Headquartered in Denver, Colorado, it has banking centers across the US with representative offices in Mexico City, Singapore, and Buenos Aires. The company website is located at www.cobank.com.

About ERisk

ERisk is a full-service provider of strategic risk management solutions including ASP-based analytics, risk transfer advisory, and consulting services. ERisk's ERM Analytic solutions are available for banks, insurance companies, asset managers, energy companies, and other non-financial corporations. The company sponsors a growing community of over 12,000 risk professional via its web portal at www.erisk.com. For more information regarding our ERM Analytics software, please contact Peter Nakada at 212-819-0170 or pnakada@erisk.com.

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