Rabobank’s head of IT risk, Simon Calvert, talks about the bank’s project to revamp its credit risk management capability. Writer Michelle Price.
As the credit crunch continues to shine an unflattering light on the banking community’s risk analysis capability, many organisations are shoring up their risk management IT infrastructures. For Dutch banking group Rabobank, this effort is taking the form of an overarching operation to more closely integrate the bank’s market and credit risk functions.
As part of this broader goal, Rabobank is undertaking a multiphase project to develop a new global counterparty credit risk management system. This will span its global capital markets division, which has more than 1000 users across the bank’s international network.
Simon Calvert, Rabobank’s head of IT risk, is tasked with leading the project, which began when the bank came up against what he describes as a “purely technical” problem. SKY – the bank’s existing global credit risk management system of 10 years – had been written in a legacy programming code that was now nearing the end of its supportable life.
System refit
Faced with sustaining a system that would be extremely difficult and costly to maintain in future years, it seemed inevitable that the bank would have to replace the system with a completely new product.
But when Rabobank approached the marketplace, it soon became clear that no software provider offered the requisite functionality coverage for Rabobank’s requirements, says Mr Calvert.
These included much of the functionality already existing in SKY: good credit limits management; strong pre-deal check functionality that allows traders to quickly perform a deal-check for each of the bank’s product types; collateral management; reporting; and the capacity to integrate these functionalities with other critical front-office systems such as deal capture system Reuters Kondor+.
“Another key capacity we have within the Rabobank system is the workflow capability,” explains Mr Calvert. Workflow functionality allows traders to automatically trigger a sequence of trade approval processes across the organisation, and is used in a range of modules.
“This was one of the areas that we found most of the vendors were really lacking in,” he says. Instead of choosing a sub-optimal replacement, the bank decided to migrate the existing system onto Microsoft’s most up-to-date programming framework, known as .NET.
Partnership model
In order to mitigate Rabobank’s IT risk and to provide the bank with long-term support capacity, Mr Calvert and his team have made it a priority to team up with a partner. Because software provider Financial Objects had undertaken a similar migration with one of its own systems, Mr Calvert decided the firm – recently acquired by Switzerland’s Temenos – was an ideal development partner.
“It was a natural choice to go to Financial Objects: it had gone through a very similar exercise to port its system to the .NET set and I knew that it had been very successful in that. It also knew our system,” says Mr Calvert.
Since the implementation will be large and critical, Rabobank is undertaking it in multiple phases, with the first release expected within the next year. There will then be three further module releases each year for the following three years.
“The alternative to that would be a ‘big bang’, but because of the diversity and globality of our user communities that would have been too difficult,” says Mr Calvert.
When completed, the new system will allow users to capture, monitor and report credit exposure, and manage collateral operations against global limits.
It will also provide users with additional flexibility by allowing risk managers to design their own portfolios and then “slice and dice” the data in a variety of ways, says Mr Calvert. “Features of the Microsoft tool-set will allow the users themselves – semi IT literate users – to design their own [risk] reports literally within minutes, and that’s an important technology for us. That takes away a lot of burden from the IT support team,” he adds.
Integration drive
Eventually the bank plans to enhance its risk management capability further by more closely integrating its credit risk management environment with its market risk management environment. “A lot of banks have identified, during the past couple of years and during the credit crunch, the need to integrate credit and market risk function,” says Mr Calvert. In the past six months, Rabobank has advanced this goal, integrating the two credit and market risk business communities.
The bank is now developing a road map by which to integrate the respective market and credit risk management IT systems. “This [project] is a building block in that process,” adds Mr Calvert.CAREER HISTORY2005: Joined Rabobank as head of IT risk.1996: Director of Raft International with responsibility for sales, development and deployment of credit risk management systems for the financial markets and the energy trading markets.Previously held senior IT positions in a number of financial markets vendor companies.
