BCH » Topics » The Role of the Market Risk Management unit

This excerpt taken from the BCH 20-F filed Jun 29, 2009.

The Role of the Market Risk Management unit

The main responsibilities and duties of this unit include, among others:



Definition of internal (non-regulatory) market risk models;



Definitions of FX, interest rate and FX volatility positions reports;



Daily generation of regulatory accrual and liquidity risk reports;



Monthly generation of internal accrual risk report, based on gaps and Earnings at Risk analysis;



Daily internal price risks monitoring, including position limits, P&L and stress test triggers, and the generation of the corresponding limits excesses and triggers breach reports. The exposures and risks are checked against limits and/or triggers, the breaches and excesses are reported to the appropriate levels in a timely manner and the policy exceptions are managed;



Daily price and liquidity risk monitoring for regulatory models;



Definition and reporting of the price and liquidity stress tests;



Participation in the Transaction Valuation definitions, which is a task lead by the Product Control unit (this unit is a part of the Financial Control area; see below for details), in order to ensure that they are aligned with the risk reports linked to the corresponding transactions;



Participation in the Transfer Pricing definitions, which are the framework for regulating the way interest rates are transfer-priced from the Treasury to other units within the bank for the accrual business. These definitions must be aligned with the risk reports linked to the corresponding transactions;



Preparation of an adequate set of internal Price and Liquidity risk limits/triggers structure (in addition to those required by the local regulators) and the submission of the corresponding proposal to the ALCO;



Approval of the debt securities eligible list for trading portfolios;



Participation in the definition of the hedge-accounting programs, ensuring comprehensive alignment with market risk reporting;



Establishment and review of market risk policies and procedures;



Involvement in the development and release of new products, identifying new market factors and defining the risk aggregation process; and



Generation and maintenance of credit risk factors for derivative transactions.



Table of Contents

The Market Risk Management unit is responsible for reporting to the relevant Treasury units about the state of all risk limits in a timely fashion. In addition, the Treasury units and senior ALCO members are notified whenever a limit is exceeded.

Limit excesses are not permitted unless operational errors have occurred. If any risk limit is exceeded, the responsible Treasury unit must document the causes of the excess and it may require a permanent limit increase only after curing the excess. Temporary limit increases may be requested but such requests must be made prior to entering into any transactions that may generate excesses.

Limits are reviewed and approved annually unless market conditions or a business activity increase requires increased limits (in such a case, a risk-return analysis is implemented, taking the current conditions into consideration).

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