Enterprise Risk Management at ABN AMRO

Details

Themes: -
Period : 2003
Organization : ABN AMRO
Pub Date : 2003
Countries : Global
Industry : Banking

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Case Code : ERMT-023
Case Length : 19 Pages
Price: Rs. 300;

Tools

Operational Risk

ABN Amro defined operational risk as the risk of loss resulting from inadequate or failed internal processes, human behavior and systems or from external events. This definition captured events such as IT problems, shortcomings in the organizational structure, lapses in internal controls, human error, fraud, and external threats.

ABN Amro had established a dedicated Operational Risk Management (ORM) discipline in 2000 to manage operational risks. ORM was similar to the credit and market risk functions. ABN had launched several initiatives to ensure compliance with the regulatory criteria of the New Capital Accord and the requirements of the Dutch central bank.

ABN Amro's Group Operational Risk Policy and Group Risk Framework outlined the tasks and responsibilities at each organizational level. The Group Operational Risk Committee was the highest approval authority for operational risk policy and consisted of members from GRM and the relevant business lines. ORM managers were assigned throughout the bank to assist line management in fulfilling this responsibility. The bank used various tools to support business management.

• Risk Self-Assessment This was a structured approach, which assisted line management in identifying and assessing risks and to take corrective actions. The risks were assessed with the assistance of ORM personnel.

• Corporate Loss Database
This was a database that allowed for the systematic registration of operational risk-related losses. This tool assisted in the analysis of operational risks for senior management, and provided a basis for capital allocation computations.

• Risk Approval Process
A comprehensive approval process that included an explicit assessment of the operational, legal and reputational risks was inherent in all new business proposals. The process included sign-offs by relevant parties and approval by an appropriate committee.

• Key Risk Indicators
Key risk indicators were used for trend analysis over time and to trigger off escalation procedures.

• Key Operational Risk Control
This reference guide provided clear descriptions of the typical key risks and required controls for a given process. These descriptions contributed to improved risk awareness and provided inputs for Risk Self-Assessment.

An internal methodology for allocating capital for Operational Risks was introduced in 2001, under the supervision of Group ORM. Committee chaired by the CFO. In 2002, more advanced approaches consistent with current regulatory proposals were being evaluated. The bank continued to monitor regulatory and methodology developments through participation in industry working groups.

Exhibits

Exhibit I: ABN AMRO: Business Principles
Exhibit II: ABN AMRO: Key Results
Exhibit III: ABN AMRO: Risk Governance Organizational
Exhibit IV: ABN AMRO: Consumer & Commercial Clients
Exhibit V: ABN AMRO: Wholesale Clients
Exhibit VI: ABN AMRO: Private Clients & Asset Management
Exhibit VII: ABN AMRO: Total Net Loans with 2002 SBU Breakdown
Exhibit VIII: ABN AMRO: C&CC – Total Private Loans for 2002
Exhibit XI: ABN AMRO: VAR for Trading Portfolios
Exhibit XII: ABN AMRO: Financial Highlights (Euro)