Limit Setting, Monitoring and Management

Challenge: Limit setting is an important way for banks to control concentration risk. Most banks are challenged with developing a limit setting framework that is objective and appropriately captures the differences in forecasted credit quality of one portfolio to another. Banks also need to have a limit setting framework where limits are easy to monitor, responsive to changes in market conditions and easy to deploy to the lending units if and when they do change

Solution: ERisk provides a comprehensive solution to limit setting. We produce limits at the portfolio level by industry, property type, product and region. We also produce limits at the name level by risk ratings in order to control for “lumpiness” that is produced by large borrowers. Our approach objectively incorporates both concentration risk and credit quality (default risk and loss risk) by making a direct link to capital. We also provide strategies on what types of derivatives a bank can use to manage these types of risks

Benefits: A limit setting project will allow you to manage concentrations and lumpiness so that you can lower the likelihood of having a large scale write-off.

©2008 Sungard. All rights reserved. Legal Information