Enterprise Risk Management at Commerzbank
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Case Details:
Case Code : ERMT-018
Case Length : 18 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Commerzbank
Industry : Banking
Countries : Germany
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Excerpts
Overview of Risks
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Commerzbank's risk-policy guidelines were laid down by the
Board of Managing Directors. The Chief Risk Officer (CRO), a member of the Board
was responsible for implementation of risk policy throughout the Group. In
addition to assuming responsibility for the Risk Control (ZRC) staff department,
the CRO was also in charge of the Global Credit Operations (ZCO) and Credit
Operations Private Customers (ZCP) banking departments.
Special committees to bundle and monitor decisions relevant for risk supported
the Board of Managing Directors in their decision-making. The Risk Committee
(RC), chaired by the CRO, dealt with market, credit and operational risks and
the Bank's overall risk situation...
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Credit Risk
Corporate Business
Since the early nineties, Commerzbank had been using detailed rating and scoring
procedures for checking creditworthiness and standardizing credit decisions.
Borrowers were assigned to ten different rating levels, ranging from 1.0
(exceptionally good creditworthiness) to 5.5 (very weak creditworthiness) and
two rating levels for problem loans (6.0 and 6.5 for work-out commitments)...
Market Risk
Since 2001, Commerzbank had been using a model for monitoring specific
interest-rate risks. It was one of the first banks to receive approval from the
German Financial Supervisory Authority to work out the capital backing required
for specific interest-rate risks on the basis of this internal model.
Commerzbank believed the model enabled it to save a significant amount of
capital. Commerzbank also used an internal model to measure the capital required
to cover general market risk...
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Liquidity Risk
Group Treasury (ZGT) was responsible for managing liquidity risk.
The task of liquidity management was to ensure that Commerzbank was
solvent even during stress situations. ZGT prepared liquidity
balances and made cash-flow forecasts, which were constantly
reviewed in the course of the year...
Operational Risk
In 2001, Commerzbank created an operational risk management
framework. The central element of the organizational structure was
the newly formed Operational Risk Committee, which was chaired by
ZRC and reported to the Bank's Risk Committee... |
Legal Risk
The identification and handling of legal risk was entrusted to Legal Services (ZRA).
ZRA produced guidelines and standard contracts, and also instructions for their
implementation and monitoring...
Strategic Risk
Strategic risk could not be measured in quantitative terms. So strategic
decisions were subject to qualitative controls. Ultimate responsibility
regarding strategic decisions lay with the Board of Managing Directors. Some
decisions also required the approval of the Supervisory Board...
Independent Control: Internal Auditing
All risk-control and risk-management activities were subjected to examination by
the Internal Auditing department (ZRev). It formed an integral part of the
risk-control and risk-management system, and worked independent of business
processes...
Exhibits
Exhibit I: Definitions
Exhibit: II
Exhibit III: Commerzbank: Minimal & Maximal Value-at-Risk for Group & Trading
units
Exhibit IV: Commerzbank: Balance Sheet
Exhibit V: Commerzbank: Income Statement
Exhibit VI: Commerzbank: Consolidated Profit Statement
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