Risk management at wellfleet bank Essay Example for Free

Risk instruction at wellfleet bank EssayThis case illustrates risk management in the world of corporal lending which is quite di? erent from the retail, subprime, and mortgage lending at the root of the recent banking turmoil. It is as well interesting because Well? eet (actually, Standard Chartered PLC ticker symbol STAN) is one of the few banks which successfully weatherworn the 2007-2009 mention crisis.Chief executive Alastair Dowes has to decide if the risk governance edge is adequate to uncover mega-risks in light of the current risk-assessment process and the credit decision regarding a bn loan application. Working for the Chief point of reference O? cer (CCO) as a senior loan supervisor, you have been asked to assess and review the risks in the proposal and to make a credit recommendation, i. e. , whether Well? eet should accept the loan application or not. At the same time, you are worried about gray-area risk decisions and, in particular, the fact that risk-adjus ted performance measurement offer rarely be automated.Risk governance requires executives to strike a balance between risk fashion model and qualitative business judgmenta holistic (rather than silo-based) view of risks. You are preparing either an executive memoranda to the CCO and CEO or a presentation to WellFleets credit committee. The following questions are meant to guide your abridgment 1. How much credit risk should banks take? What avenues do they have to manage credit risk ex ante and ex post? 2. Research the history of WellFleet = Standard Chartered. How well has Well? eet performed?Why and how has it avoided study problems in its orporate loan portfolio? Was the bank lucky or smart? 3. Analyze the risk management process at WellFleet Bank. What suggestions might you make to the CEO about improving the process? (a) What are the objectives of loan o? cers and supervisors, respectively? What about the risk management unit? (b) Are the incentives of line and risk managem ent units align? Why or why not? (c) How would you organize origination and risk management activities?What risk factors accept the credit exposure to Gatwick? Analyze what a credit bet on Gatwick really amounts to. a) Download storehouse prices for pure gold-mining companies such as Barrick (ticker ABX) and Newmont (ticker NEM) as well as a gold prices and the SP 500. inscribe the instantaneous return Rit = ln PPit . it? 1 (b) Compute the correlation matrix for the 4 variables. How would you interpret the results? (c) Run a CAPM-type lapse of the gold-miners return Rit on a constant, the SP 500 return Rmt the gold return Gt by OLS, i. e. , theme the following model Rit = ? + ? Rmt + ? Gt + ? t How would you interpret the results? What does it tell you about the credit exposure? 2 5.Calculate the Expected Loss, Economic Revenue and Economic Pro? t for both proposals. What would your decision regarding the two credit proposals be? Why? (a) What steps if any could Well? eet take t o reduce its credit exposure to Gatwick? (b) What avenues are open to the bank to manage its credit exposure ex ante (before and in the lending process) and ex post (after the loan went onto its books)? 6. Given Well? eets new focus on large corporate deals and its need to recruit relationship managers from investment banks, what are the challenges for the risk culture of the organization, and its style of risk management in particular?