Measuring Risk from Financial Statements


Instructor: Fred Vacelet
Product ID: 706568
Training Level: Intermediate

  • Duration: 60 Min
For external analysts, financial statements are a key source of information for getting an understanding of how risk a financial institution can be. Yet, still too many people are tempted to think that financial statements are designed to provide a true and fair view on risks. Do we know how much of the risks are genuinely communicated via financial statements?
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Why Should You Attend:

International regulation is clear and thorough about a theme: financial institutions must, under pillar 3 requirements, pursue the art of disclosing their risks. This includes making a statement on risk appetite, and giving a useful picture about the overall risks actually incurred by the bank, be these risks covered by capital requirements of not, be these risks well understood or less so.

Pillar 3 includes the obligation for banks to know their risks, their risk appetite, and to communicate about it. The importance of pillar 3 requirements is being highlighted time and time again, after damages have occurred, and more often than not together with strong indications of the numerous shortcomings of pillar 3.

Before getting committed to a financial institution, or, worse, when a risk shows signs of occurring, it is common practice, if not common sense, to get to an understanding of underlying risk from the primary source of information. Whilst the dream of external stakeholders of a bank is to understand the risk profile, management may have a different perspective and a priority to attract potential investors and reassure the public and regulators. Hence there is a perverse incentive to use a double language, to minimize the disclosure and to show one’s operation as less risky than they are perceived, and even less risky than they actually could be.

Financial statements, contrarily to what might be believed, are not aimed at communicating about risks, but about financial position. Auditors spend more energy and skill to audit accounts than to understand the risks of past-cut-off date operations. We examine a few risks and their potential visible and less visible effects on financial statements.

This is truer and all the more worrying for extreme risks, in which there are few or no precedents. Hence stress-test exercises, even assuming that these are carried on properly in the first place, should indicate any residual vulnerability, to be disclosed. However, we still have to meet a bank that clearly gives away to the public scenarios that, if occurring, will bring the bank down.

We examine here a few aspects of reported risks, where these are to be found, and finally concrete examples.

Areas Covered in the Webinar:

  • Balance sheet
  • Profit and Loss
  • Cash flow statement
  • The risks that are disclosed
  • What will not be disclosed
  • Messages from the stock market
  • An inventory of risks
  • The precedents in the industry
  • Alternative sources of information

Who Will Benefit:

This workshop is intended for professionals in financial institutions, regulatory bodies and advisory firms, as well as individuals with a professional interest in the course material. Specific titles and functions that are of particular relevance include:

  • Market Risk Management and Analytics
  • Traded Market Risk
  • Correlation Trading
  • Market Risk Modelling
  • Credit Risk Modelling
  • Risk Methodology
  • Risk Analysis
  • Model Validation
  • Regulatory and Economic Capital
  • Implementation of Basel Accords
  • Stress-testing
  • Risk Internal Audit — Quantitative Analysis
  • Finance and Treasury
  • Regulation & Compliance
  • Financial Institutions Advisory
  • Bank Supervision
  • Bank Regulation
  • Financial Stability and Economic Analysis
Instructor Profile:
Fred Vacelet

Fred Vacelet
Financial Risk Management Consultant, FVacelet

Fred Vacelet, MBA, FRM/PRM, CTM, IFQ, is an international Financial Risk Management Consultant with an expertise in Risk Management methodological frameworks. His experience spans some 25 years, advising banks and software houses on risk management. Fred holds various degrees, including from London Business School, England, with post-graduate studies at the Technische (then West)-Berlin, Germany and Keio (Japan) universities. He is published author on risk management and Basel Accords, and a regular speaker at conferences. Fred writes and presents training courses and workshops on risk management and Basel Accords.

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