Risk management at wellfleet bank Essay Example for Free

chance management at wellfleet bank EssayThe 2007-2010 nancial crisis has brought faith gamble and default to the forefront of the regulatory and political discussion. This case illustrates seek management in the world of corporate lending which is quite dierent from the retail, subprime, and mortgage lending at the root of the recent banking turmoil. It is also interesting because goodeet (actually, measuring rod Chartered PLC ticker symbol STAN) is one of the few banks which successfully weathered the 2007-2009 credit crisis. Chief executive Alastair Dowes has to decide if the risk governance process is decent to uncover mega-risks in light of the current risk-assessment process and the credit decision regarding a bn loan coating. Working for the Chief Credit Ocer (CCO) as a senior loan supervisor, you have been asked to assess and review the risks in the proposal and to make a credit recommendation, i.e., whether Welleet should accept the loan application or not. At t he same time, you are worried about gray-area risk decisions and, in particular, the fact that risk-adjusted performance measurement can rarely be automated. Risk governance requires executives to strike a balance between risk modeling and qualitative business judgmenta holistic (rather than silo-based) view of risks. You are preparing both an executive memo to the CCO and CEO or a presentation to WellFleets credit committee. The following questions are meant to guide your analysis1. How much credit risk should banks take? What avenues do they have to manage credit risk ex ante and ex post?2. Research the history of WellFleet = Standard Chartered. How well has Welleet performed? Why and how has it avoided major problems in itscorporate loan portfolio? Was the bank lucky or smart?3. Analyze the risk management process at WellFleet Bank. What suggestions aptitude you make to the CEO about improving the process?(a) What are the objectives of loan ocers and supervisors, respectively? What about the risk management unit?(b) Are the incentives of line of reasoning and risk management units aligned? Why or why not? (c) How would you organize origination and risk management activities?4. What risk factors drive the credit film to Gatwick? Analyze what a credit bet on Gatwick really amounts to.(a) Download stock prices for pure gold-mining companies such as Barrick (ticker ABX) and Newmont (ticker NEM) as well as a gold prices and the SP 500. Calculate the instantaneous withdraw Rit = ln PPit . it1(b) Compute the correlation matrix for the 4 variables. How would you interpret the results? (c) Run a CAPM-type regression of the gold-miners return Rit on a constant, the SP 500 return Rmt the gold return Gt by OLS, i.e., estimate the following model Rit = + Rmt + Gt + tHow would you interpret the results? What does it tell you about the credit exposure?5. Calculate the Expected Loss, Economic Revenue and Economic Prot for both proposals. What would your decision rega rding the two credit proposals be? Why? (a) What go if any could Welleet take to reduce its credit exposure to Gatwick? (b) What avenues are open to the bank to manage its credit exposure ex ante (before and in the lending process) and ex post (after the loan went onto its books)?6. Given Welleets new focus on large corporate deals and its need to recruit kinship managers from investment banks, what are the challenges for the risk culture of the organization, and its style of risk management in particular?