INTERNATIONAL RISK MANAGEMENT A COMMERCIAL BANK PERSPECTIVE

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INTERNATIONAL RISK MANAGEMENTA COMMERCIAL BANK
PERSPECTIVE

• The Fletcher School

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Risk Management Structure

• Levels of International Risk
• International Bank Products Risk
• Characteristics
• Risk Management and Mitigation

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Levels of International Risk

• Country Risk
• Customer/Counter Party Risk
• Systemic Risk

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Country Risk Analysis Defined

• Sovereign Risk
• Transfer Risk
• Cross-Border Risk
• Banks vs. Other Companies

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Customer/Counter Party

• Local Currency Risk
• Covariant with Country Risk FICORCA,
• Indonesia

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Systemic Risk

• Close Cousin of Country Risk
• Brings in Governance, Accounting
• Standards, Transparency
• Contagion

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Product Risk Characteristics

• Lessons from the 1980s
• - Trade Finance is Preferential to Loans
• - Bonds are Relatively Safe
• - Multilateral are Sacred
• - Banks are Subordinate
• Do These Lessons Apply Today Yes,
• But With Less Force
• Derivatives and Legal Infrastructure
• Project Finance
• Foreign Exchange HERSTATT Risk, CLS

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Risk Management/Mitigation

• Bilateral Public Guarantees/Insurance
• EXIM, OPIC, CCC, JEXIM (et al)
• Multilateral Guarantees/Insurance MIGA
• Faith in Defeasance (B-Loans)
• Private Insurance (EIC, AIG, NCM, etc.)
• Asset-Backed Structures
• Product/Customer Selection

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Risk Assessment Process

• Country Credit Ratings Countries as
• Companies
• Commercial Risk Assessment
• Integrating Country/Commercial Ratings
• Risk/Return Calculus and Capital Allocation
• Methodology The Country Risk Tax
• Regulation Interagency Country Exposure
• Review Committee (ICERC)

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Decision Making Governance

• International Capital Market Credit
• Credit Approval Authorities Matrix
• - Country Risk
• - Commercial Risk