BCI Algo risk model wins Italian central bank approval

Banca Commerciale Italiana (BCI) has received approval from the Bank of Italy for the use of internal market risk models built using technology from Toronto-based Algorithmics. The approval marks the first time that an Italian bank has had an internal model validated for use by the central bank.

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BCI Algo risk model wins Italian central bank approval

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As a consequence of the recent merger of BCI with Banca Intesa, the approved model will be extended to estimate regulatory and economic risk capital for the combined operations of the new IntesaBci bank.

According to Mauro Maccarinelli, head, risk management, capital markets at IntesaBci, the standard regulatory models for market risk do not correctly reflect the actual economic risk capital needs of sophisticated banks such as IntesaBci and result in onerous capital requirements. "Using Algo Market, we have developed an internal model that produces far more accurate risk reports and delivers tremendous capital savings," he says.

Algorithmics' models use a variety of value-at-risk (VaR) methods, including parametric methods and Monte Carlo simulations for non-linear portfolios. They cover market and equity-specific risk, and will cover credit risk when the use of internal models for calculating spread and event risk are approved by the Bank of Italy, expected within a year.

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