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Risk and Reward: Enterprise Risk Management Technology

Enterprise risk management is as much about a bank's culture as it is about specific technology deployments.

Evolving ERM Solution

According to Toronto-based Algorithmics, a provider of enterprise risk solutions for financial institutions, its ERM solution, Algo Suite, enables risk managers to measure, monitor, and manage assets and risk in real time, using portfolio/risk analytics, valuation methodologies and scenario-generation techniques. Over the past 10 years, however, Algorithmics has significantly changed the way its ERM software is developed, says Andy Aziz, managing director, risk solutions, for Algorithmics. "Ten years ago, we first started calling our solution an ERM solution," he says. The solution, which did everything from data acquisition to data management to risk analysis and reporting, delivered data to managers in a batch deployment, Aziz relates. "We were primarily addressing the needs of the middle office, [which was] seen as a police force," he says.

But Algorithmics' current ERM solution is a totally different animal, Aziz stresses. "In today's world, we need to be able to provide not only a snapshot view of exposure, but also be real time enough to assess the impact of new transactions -- sometimes in milliseconds," he says. Service-oriented architecture, Aziz explains, abstracts the engines from the reporting interfaces and allows Algo Suite to address the twin issues of performance and leveraging other technologies within an organization.

Aziz says that Algorithmics' ERM customers basically fall into two "clusters." Cluster 1 takes the Algorithmics solution out of the box, and Cluster 2 starts off using the ERM solution for a single project and then expands it throughout the bank. The first cluster probably is the most popular in smaller organizations because of speed of deployment and cost of ownership, Aziz adds.

"The holy grail is a linkage between enterprise risk management, ALM, economic capital and, ultimately, with shareholder value," Aziz says. "Some believe they are already there, but we're more on the path to moving in that direction."

Milan-based Banca Intesa (US$347 billion in assets) has been operating on Algorithmics' Algo Suite, which is based on a Sun Solaris environment, since 1996, relates Paolo Sironi, head of market risk models and architecture for the bank. "The backbone of our [risk management] technology is Algorithmics. The ERM system was built in 1996 and has evolved ever since," he says. "By focusing on an enterprise risk infrastructure based on the Algo Suite, we have been able to leverage the achievements, models, market data, processes and methodologies developed and traditionally calibrated to support trading activities, and extend all of these to other business units -- retail business, international branches and subsidiaries -- keeping the bank's market risk management at the cutting edge."

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