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QRM launches new credit risk module

07 December 2004  |  662 views  |  0 Source: Quantitative Risk Management

Quantitative Risk Management Inc. (QRM) announced today that one of America's five largest banks has gone live with QRM's new Credit Risk Module for credit loss forecasting in both its commercial and consumer portfolios.

The bank becomes the first institution in the United States using a commercially offered solution to forecast earnings while incorporating the effects of credit risk.

The bank is using QRM's new Credit Risk Module in combination with the net interest margin forecasting capabilities of QRM's Balance Sheet Management System. The bank's portfolio analysts now generate credit-loss forecasts in which economic variables such as the unemployment rate and gross domestic product can be simulated to determine how variances will affect both credit losses and net interest margin.

The result is the most sophisticated and dynamic earnings forecast attainable, providing the bank's balance sheet managers the best possible understanding of the joint impact of credit losses and interest rate fluctuations on its earnings. Using this intelligence, they are able to actively manage their institution's risk and make the most profitable decisions across both their commercial and consumer portfolios.

"The seamless integration of the credit-loss forecasting capability in our new Credit Risk Module with the net interest margin forecasting capacity of our Balance Sheet Management System gives users a powerful tool to manage risk and maximize profitability," said Charles A. Richard III, QRM executive vice president.

QRM's new Credit Risk Module, unlike other credit systems, simultaneously forecasts credit losses, income, balances and Basel II capital requirements. Users can run multiple stress and what-if scenarios simultaneously to test behavioral and market assumptions, and the module includes templates covering a complete set of financial instruments, including credit derivatives, needed to model assets and liabilities across the balance sheet.

"An indication of the level of sophistication of our new Credit Risk Module is the Basel I and II regulatory reporting and what-if scenario modeling capability," Richard added. "Our system is at the forefront of the industry with its comprehensive ability to forecast and report Basel II capital requirements."

Other features of QRM's Credit Risk Module include:
  • Comprehensive loss forecasting, including the ability to forecast loan losses, lease losses and provision expense
  • Fully integrated credit and market risk modeling, dissecting results by portfolio or down to individual transactions
  • Tracking of funded and unfunded exposure
  • Measurement of credit value at risk (VAR)
  • Ability to calculate potential future exposure by portfolio, counterparty or instrument
  • Ability to mark-to-market assets with high credit risk using reduced form credit pricing models (fully integrated with interest rate models)
  • Ability to calculate economic capital for both commercial and consumer portfolios, sub-additive transaction capital allocations.
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