Optimizing Counterparty Risk Capital with Real-Time Simulation-Based Exposure and Limits Management
Technology Category
- Analytics & Modeling - Digital Twin / Simulation
- Analytics & Modeling - Real Time Analytics
Applicable Industries
- Finance & Insurance
- Retail
Use Cases
- Real-Time Location System (RTLS)
- Virtual Reality
About The Customer
BBVA is a multinational banking group headquartered in Spain. It operates in Europe, North, Central and South America, and the Asia-Pacific region. The group employs over 114,000 people, owns assets of EUR 689 billion, and reports annual net income of approximately EUR 7.5 billion. BBVA’s philosophy is that risk is a fundamental part of every business decision, not only at a strategic level, but also on tactical and operational levels. The bank wanted to position risk management in a new way within its organization – managing risk more proactively by moving from an ex-post to an ex-ante model.
The Challenge
BBVA, a multinational banking group, was facing a challenge in providing its trading desks with real-time, accurate insight into counterparty credit risk (CCR) and checking the limits for each trade. The bank's philosophy is that risk is a fundamental part of every business decision, and it wanted to manage risk more proactively by moving from an ex-post to an ex-ante model. This required the ability to obtain a precise valuation of CCR and other risk measures even before closing deals. However, the sophisticated CCR models that BBVA's risk team had been using could only be run in a batch process at the end of each day. For pre-deal limit checking, traders had to use a simpler “add-on” modeling approach, which did not take some important factors into account. Moreover, this model was only used in some geographies, while in others, there was no pre-deal limit checking at all.
The Solution
BBVA decided to work with IBM, as it was already using IBM® Algorithmics® software to power its end-of-day batch model for CCR exposure measures. The bank recognized that the real-time credit engine provided by IBM Algorithmics Integrated Market and Credit Risk was an ideal platform for the new solution. Moving to a real-time engine that would support full Monte Carlo simulation rather than a simple add-on approach required close collaboration between BBVA’s risk and IT teams and IBM. The new IT infrastructure needed to be highly available to support trading desks seamlessly throughout the day. From a user’s perspective, the pre-trade limit checking workflow needed to be clear, simple, and intuitive for the risk managers and traders who would interact with it. The solution also ensured that the trading data that is input into both models is consistent, and an automated reporting platform was introduced that generates statistics and trends about daily trading patterns.
Operational Impact
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