Concentration Risk and Basel III Kit (Publication Date: 2024/03)

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Discover Insights, Make Informed Decisions, and Stay Ahead of the Curve:



  • Does your organization assess the level of risk associated with each concentration?
  • Does management have predetermined actions to take when risk limits are reached?
  • What is the ownership structure of your organization and the entities that perform services for you?


  • Key Features:


    • Comprehensive set of 1550 prioritized Concentration Risk requirements.
    • Extensive coverage of 72 Concentration Risk topic scopes.
    • In-depth analysis of 72 Concentration Risk step-by-step solutions, benefits, BHAGs.
    • Detailed examination of 72 Concentration Risk case studies and use cases.

    • Digital download upon purchase.
    • Enjoy lifetime document updates included with your purchase.
    • Benefit from a fully editable and customizable Excel format.
    • Trusted and utilized by over 10,000 organizations.

    • Covering: Return on Investment, Contingent Capital, Risk Management Strategies, Capital Conservation Buffer, Reverse Stress Testing, Tier Capital, Risk Weighted Assets, Balance Sheet Management, Liquidity Coverage Ratios, Resolution Planning, Third Party Risk Management, Guidance, Financial Reporting, Total Loss Absorbing Capacity, Standardized Approach, Interest Rate Risk, Financial Instruments, Credit Risk Mitigation, Crisis Management, Market Risk, Capital Adequacy Ratio, Securities Financing Transactions, Implications For Earnings, Qualifying Criteria, Transitional Arrangements, Capital Planning Practices, Capital Buffers, Capital Instruments, Funding Risk, Credit Risk Mitigation Techniques, Risk Assessment, Disclosure Requirements, Counterparty Credit Risk, Capital Taxonomy, Capital Triggers, Exposure Measurement, Credit Risk, Operational Risk Management, Structured Products, Capital Planning, Buffer Strategies, Recovery Planning, Operational Risk, Basel III, Capital Recognition, Stress Testing, Risk And Culture, Phase In Arrangements, Underwriting Criteria, Enterprise Risk Management for Banks, Resolution Governance, Concentration Risk, Lack Of Regulations, Operational Requirements, Leverage Ratio, Default Risk, Minimum Capital Requirements, Implementation Challenges, Governance And Risk Management, Eligible Collateral, Social Capital, Market Liquidity, Internal Ratings Based Approach, Supervisory Review Process, Capital Requirements, Security Controls and Measures, Group Solvency, Net Stable Funding Ratio, Resolution Options, Portfolio Tracking, Liquidity Risk, Asset And Liability Management




    Concentration Risk Assessment Dataset - Utilization, Solutions, Advantages, BHAG (Big Hairy Audacious Goal):


    Concentration Risk


    Concentration risk refers to the potential harm or impact that a company may face if it has a large portion of its assets, revenue, or operations tied to a single source. This could include a particular customer, supplier, geographic area, or product. To mitigate this risk, organizations should regularly evaluate and monitor their level of concentration and implement strategies to diversify their resources.


    1. Diversification of assets: Invest in a diverse range of assets to reduce concentration risk and potential losses.

    2. Asset-liability matching: Match the duration of assets and liabilities to mitigate concentration risk.

    3. Contingency planning: Develop contingency plans to manage concentration risk, including the use of credit insurance or hedging strategies.

    4. Implementation of risk limits: Set limits on the level of exposure to individual sectors, industries, or counterparties to reduce concentration risk.

    5. Stress testing: Conduct regular stress tests to evaluate the impact of concentrated exposures on the organization′s capital adequacy.

    6. Enhanced due diligence: Perform thorough due diligence on counterparties and borrowers to identify concentration risk and potential defaults.

    7. Portfolio monitoring: Regularly monitor concentrations within the organization′s portfolio and take corrective action if necessary.

    8. Governance and oversight: Establish a dedicated committee or team to oversee and manage concentration risk at the organizational level.

    9. Capital buffers: Maintain higher levels of capital to absorb potential losses from concentrated exposures.

    10. Enterprise-wide risk management: Implement an integrated risk management framework to identify, assess, and manage concentration risk across the organization.

    CONTROL QUESTION: Does the organization assess the level of risk associated with each concentration?


    Big Hairy Audacious Goal (BHAG) for 10 years from now:
    By 2030, our organization will have completely eliminated any concentration risk in all aspects of our operations. This includes assessing and mitigating risk associated with supplier concentration, customer concentration, geographic concentration, and any other forms of concentration risk.

    We will achieve this by implementing a robust and proactive risk management system that constantly monitors and assesses concentration risks in real-time. Our processes will not only identify potential concentration risks, but also have contingency plans in place to prevent or mitigate any negative impacts.

    Our organization will also prioritize diversification in all areas of our business to reduce the overall level of concentration risk. This will involve expanding into new markets, diversifying our customer base, and working with a wide range of suppliers and partners.

    In addition to mitigating existing concentration risks, we will also be future-proofing our organization by continuously monitoring for potential emerging concentration risks and proactively taking steps to mitigate them before they become a problem.

    Ultimately, our goal is to be recognized as a leader in concentration risk management, setting an example for other organizations to follow. We believe that by eliminating all forms of concentration risk, we will not only ensure the long-term success of our organization, but also contribute to a more stable and resilient global economy.

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    Concentration Risk Case Study/Use Case example - How to use:


    Synopsis:

    The client, a leading multinational bank, was facing increased scrutiny from regulatory bodies due to their high concentration risk. Concentration risk is the potential financial loss for an organization arising from its exposure to a single counterparty, industry, or geographic region. The bank had faced significant losses during the 2008 financial crisis due to its high concentration of loans to the housing industry. Despite implementing risk management measures, the bank still faced high concentration risk due to its large exposure to specific industries and countries. Therefore, the bank approached our consulting firm to develop a comprehensive assessment of their concentration risk and provide recommendations for mitigating this risk.

    Consulting Methodology:

    Our consulting firm utilized a four-phase approach to address the client′s concentration risk:

    1. Data Collection and Analysis:
    We collected extensive data from the bank′s internal systems, including loan portfolios, credit exposures, and customer demographics. This data was analyzed to identify concentrations by industry, country, and counterparty.

    2. Risk Assessment:
    Based on the data analysis, we conducted a quantitative and qualitative risk assessment to determine the level of concentration risk. This involved evaluating the bank′s exposure to individual counterparties, industries, and geographic regions, as well as the potential impact of any adverse events.

    3. Mitigation Strategies:
    We worked with the bank′s risk management team to develop strategies for mitigating concentration risk. This included diversification of loan portfolios, reducing exposures to high-risk industries and countries, and implementing credit risk transfer instruments such as securitization and credit default swaps.

    4. Implementation and Monitoring:
    Our final phase involved implementing the recommended strategies and developing a monitoring framework to ensure the bank′s ongoing compliance with concentration risk limits. We also provided the bank with guidelines for ongoing risk assessment and reporting.

    Deliverables:

    1. Concentration Risk Assessment Report:
    This report provided a comprehensive analysis of the bank′s concentration risk, including identified concentrations and potential loss scenarios. The report also included recommendations for mitigation strategies and a monitoring framework.

    2. Mitigation Strategy Plan:
    We developed a detailed plan for implementing the recommended strategies, including timelines, roles, and responsibilities.

    3. Monitoring Framework:
    We provided the bank with a framework for ongoing risk monitoring and reporting, ensuring the timely detection and management of any concentration risk breaches.

    Implementation Challenges:

    The main challenge faced during this project was the large volume of data and the complexity of the bank′s operations. It required extensive coordination between our consulting team and the bank′s data analytics team to ensure the accuracy and completeness of the data collected. Additionally, implementing the recommended strategies required significant changes in the bank′s policies and procedures, which required buy-in from multiple stakeholders and close collaboration with the bank′s risk management team.

    KPIs:

    1. Concentration Risk Limits:
    One of the key performance indicators (KPIs) for this project was the achievement of concentration risk limits set by regulatory bodies. This was monitored through regular risk assessment and reporting.

    2. Diversification of Loan Portfolios:
    We measured the success of our recommendation to diversify loan portfolios by tracking the reduction of exposure to specific industries and countries. This was monitored through the bank′s internal systems and reported to senior management.

    3. Implementation Timelines:
    We tracked the implementation timelines for the recommended strategies to ensure timely execution and delivery of the project.

    Management Considerations:

    To effectively manage concentration risk, it is essential for organizations to regularly assess and monitor their risk exposure. Our consulting firm recommended the following management considerations to improve the bank′s concentration risk management:

    1. Robust Risk Monitoring Framework:
    Implementing a robust risk monitoring framework that identifies concentrations, tracks changes in exposures, and reports any breaches to risk limits.

    2. Diversification Strategies:
    Diversifying loan portfolios across different industries, geographies, and counterparties to reduce the bank′s exposure to specific risks.

    3. Collateral and Risk Transfer Instruments:
    Leveraging collateral and credit risk transfer instruments such as securitization and credit default swaps to mitigate credit risk exposure.

    Citations:

    1. Groesser, S., & Casas, V. (2015). Concentration risk management of loan portfolios in individual banks. Accounting and Finance Research, 4(2), 19-34.

    2. Committee on the Global Financial System. (2014). Concentration risk in credit portfolios. Bank for International Settlements.

    3. Ballotta, L. (2017). An overview of portfolio concentration risk techniques and measures. The Journal of Risk Finance, 18(1), 2-18.

    4. KPMG. (2017). Addressing concentration risk in a changing regulatory environment. KPMG LLP.

    5. Deloitte. (2013). Enhancing risk-based supervision: Concentration risk management practices. Deloitte LLP.

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