Banks team up to avoid future losses
LONDON (Reuters) - Banks are increasingly keen to share sensitive risk information with their rivals, albeit anonymously, as lenders try to limit damage from debtors' defaults, fraud and other hazards in the future.
The international banking industry is also working to create common methods on how to report risk, after the turmoil of the past year exposed flaws in their control systems and procedures, blamed for spectacular write-downs and cases of fraud.
The Risk Analysis Service (RAS), which provides data on more than 1 trillion euros' ($1.3 trillion) worth of global banks' exposure to debtors, said the number of participants had increased by around a quarter in the past year, adding it expected the current number to double over the next year.
"We joined RAS so we could benchmark UniCredit against our competitors," UniCredit SpA (CRDI.MI) Chief Risk Officer Henning Giesecke said when the bank joined the service.
"It is helpful ... because it provides us with an overall view of how an industry sector is performing."
Meanwhile, mathematicians from technology corporation IBM (IBM.N) are helping analyze 34 billion euros of losses collected by the Operational Riskdata eXchange Association (ORX) in an effort to create better safeguards against operational losses.
"You will get a far better and more realistic appreciation of potential risk if you have access to broad industry-wide data than you would from a single organization," said IBM spokesman Bill Mew.
ORX member-banks provide data on their losses due to fraud, legal action, computer failure and lax internal practices among other risks.
Operational risk broadly includes all risks apart from market risk -- the danger of an adverse market move; credit risk -- the risk of loss due to a debtor's failure to repay the debt; strategic or business risk -- the possibility of a wrong business decision; and liquidity risk.
Membership of ORX, founded in 2004, has more than tripled in the past three years and now counts 52 banks, including HSBC (HSBA.L), Barclays (BARC.L), J.P. Morgan (JPM.N) and Bank of America (BAC.N).
BANKERS, UNITE
Banks are also making progress in introducing standard methods for reporting risks and are developing better risk models to calculate probable gains and losses on their assets in a variety of scenarios.
Last month, the U.S. Securities and Exchange Commission (SEC) voted in favor of requiring companies to file financial reports using technology known as XBRL.
Companies will have to use XBRL electronic tags, which are like bar codes and can be attached to each piece of financial data such as earnings per share and revenue.
Consultants Celent say the new focus on risk management will be one of the top drivers of spending on information technology and services by financial companies, which they expect to reach $364.5 billion globally by 2010.
Basel II rules, due to be phased in over the next few years, also aim to ensure that banks around the world meet similar requirements for matching capital cushions to risk.
"In 2009 banks will be more regulated, and hiring of risk managers will pick up and carry on into 2010," said Louis Altman, a risk recruiter at London-based hiring firm Hudson.
Bob Penn, a partner in the regulatory practice at leading British law firm Allen & Overy, agreed.
"Banks are going to feel under siege for the next 12 to 24 months in terms of their regulatory requirements," he said. "It's safe to say that we will have a busy year."
(Editing by Elaine Hardcastle)
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