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Treasury Risk is Crucial

Jorge Mina, MD at MSCI and founding member of RiskMetrics – which merged with MSCI in 2010 – has a number of suggestions for Indian banks in taking up an effective risk management system:

Jorge Mina’s emphasis on the importance of an independent risk function virtually borders on obsession. The head of Risk Management Analytics for Banks at MSCI and founding member of RiskMetrics talks about risks that Indian and other banks in similar emerging markets normally face and picks up on international standards and benchmarks that these banks must follow in risk mitigation processes. “One thing I find still evolving in India, and which requires maturity, is the linkage between the front office and an independent risk management function in the middle office. This is an important governance principle as the role of an independent risk team is to identify, measure, manage and communicate risks on an ongoing basis rather than performing ex-post analyses. I would take it a step further to say that the risk function should work jointly with the front office in setting limits and controls consistent with the risk appetite of the organization,” says Mina.

The process has to be continuous with frequent interactions between teams, he emphasizes.

Mina, who was in India recently, says it is imperative to measure risk at the portfolio level and avoid relying solely on front office systems used mainly for pricing and trading of individual transactions. “An independent and robust risk management system encompasses risks across the entire firm allowing them to identify and communicate risks that might otherwise be overlooked by the profit centers at the bank,” he adds.

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