Handbuch Treasury / Treasurer's Handbook

S. 792Part V: Risk Management

In recent years risk management has undergone dramatic changes, driven by the tremendous growth in derivatives trading, the development of modern approaches within finance theory, the understanding that classic accounting approaches cannot adequately describe the risks involved in complex trading and hedging strategies and last but not least the experiences in the financial market crisis of 2008. Today, the bank departments of strategic planning, system support, and controlling attempt to evaluate the impact of these new developments on the overall strategy of the banks, on the role of the management, and on the optimum allocation of the company’s capital. With the help of risk measurement, risk assessment, and risk monitoring banks try to develop methods to adequately estimate market, credit, liquidity and operational risks. Furthermore, a clear limit system has been established that allows the bank’s overall risks to move within given limits.

At present, statistical methods such as the value at risk (VaR) approach are being used to quantify the risks of banks. These VaR approaches take several factors into account: possible fluctuations of individual risk po...