Re-engineering the Credit Approval Process Presented by: Nancy - - PowerPoint PPT Presentation

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Presented by: Nancy Hasey-Ross Date: October 5, 2011

Re-engineering the Credit Approval Process

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Agenda

• Credit life cycle assessment
• Opportunities for credit re-engineering
• Key accomplishments of credit re-engineering efforts
• Challenges and lessons learned

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Key Cornerstones of Credit Re-engineering

• Strong governance to support ever increasing credit risk inquiries from growing number of

stakeholders on a more timely basis

• Better credit exposure management and control in a volatile economic climate
• Global framework to address regulatory mandates and adhere to capital rules

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Analyze Approve Aggregate Monitor Manage & Control

Process Process

Credit Life Cycle Assessment

Product Business Unit Industry Country Counterparty Dimensions Dimensions

• Analyze

– Counterparty Evaluation – Concentration Assessment – Trend Analysis – Electronic Data Feeds

• Approve

– Electronic Signatures – Automated Workflow – Rules-Based Limit Generation

• Aggregate

– Flexible Aggregation Approaches – Multi-Metric Methodologies – Credit Mitigating Benefits

• Monitor

– Dashboard Reporting – Drill-Down Capability – Warnings & Alerts – Exception Management

• Manage & Control

– Exception Resolution – Reallocation – Audit Controls – Policy Guideline Checks – Role Based Security

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Opportunities and Key Accomplishments of Credit Re-engineering

Approvals and Surveillance

• Opportunities

– Expand credit risk monitoring and limit setting beyond legal entity and product levels – Facilitate cross-product and cross-divisional credit views to encourage more efficient use of limits – Tighten risk controls through rules, warnings, alerts, reports, and audit trail functionality – Increase automation of low-risk approval processes

• Accomplishments

– In March 2011, rolled out globally to 250 users including credit functions in Global Markets, Securities Finance, ERM and internationally including Germany, Asia Pacific, and London. Limited use in Luxembourg. – Provided flexible concentration limit setting and in process of building comprehensive risk analytics for counterparty legal entity, counterparty product, and country – Introduced risk-sensitive approval processes, allowing business and risk managers to focus on higher risk credit decisions – Implemented workflow rules, approval audit trail, and exception reports to tighten controls

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Opportunities and Key Accomplishments of Credit Re-engineering

Data Quality

• Opportunities

– Deliver credit decision makers with cleaner, more highly integrated credit data – Reduce manual data entry and minimize data duplication across systems – Centralize a standard limit and exposure dataset that also supports custom and local reporting views

• Accomplishments

– Improved credit decision making capabilities by increasing access to critical credit data – Established master list of all limits for all credit products across all counterparties – Automated synchronization with various source systems to ensure approved limits are up-to-date across the enterprise – Strengthened underlying data quality for enhanced credit and capital reporting

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Opportunities and Key Accomplishments of Credit Re-engineering

Efficiency

• Opportunities

– Standardize workflows to improve approval process efficiency across all products and counterparties – Realize significant business value from prior regulatory infrastructure investment

• Accomplishments

– Leveraged Basel infrastructure for counterparty, exposure and PD rating information to serve as data foundation supporting enterprise-wide limit monitoring processes – Facilitated stronger communication and collaboration across business units and international sites – Created an enterprise-wide platform to automate credit approval and exposure monitoring – Eliminated redundant data entry points and reduced operational overhead to approve and administer limits

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Operational Systems

Fund Accounting Global Markets Securities Finance Banking Systems Treasury Systems Loan Operations Custody Systems

Moving from Regulatory Compliance to Business Value

Risk Management System

Counterparty details Exposures PD Tools

Basel Infrastructure

Limit Management System

Counterparty, Country, and Product Aggregation Limit Utilization Exceptions and Alerts Credit Approval Workflow Approved Limits Reporting Counterparty Workflow Dashboards Aggregate Local

Credit Platform

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Moving from Regulatory Compliance to Business Value

• Creates more risk-sensitive credit processes leveraging Basel framework
• Improves credit decision making by providing more complete, easily accessible

information

• Delivers automated approach for reconciliation of limits back to the operational source

systems

• Strengthens underlying data quality and enhanced credit and capital reporting
• Enables advanced analytics and improved capital allocation
• Facilitates stronger communication and collaboration across business units and

international sites

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Global View of Credit Risk

• Provides concentration limit setting and risk analytics for counterparty legal entity,

counterparty product, and country

• Promotes a global view of limits and exposures across internal legal organization

hierarchy, product groups and industries

• Supports global stakeholder base

– Localized requirements: reports and exposure calculations – Workflow modification to support unique approval chains – Multicurrency for non-U.S. businesses – Time zone differences

• Promotes effective use of capital using limit data

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Counterparty Legal Entity and Product Limits

Counterparty Hierarchy Legal Entity and Group Exposure Counterparty Exposure Trend Counterparty Information

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Counterparty Legal Entity and Product Limits continued

All product exposures and limits for the counterparty

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Country Limit Structure

Limits are set on a country size and risk specific basis from both a top-down perspective tied to SSB’s capital base and a bottom-up perspective that reflects business appetite.

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Country Exposure Report by Product

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• State Street Bank Luxembourg and State

Street Bank GmbH are separate legal entities which are part of the State Street Corporation hierarchy

• Each of these legal entities must monitor

its limits and exposures in accordance with its regulators

• Reports should display limits and

exposures from the perspective of State Street Bank GmbH, State Street Bank Luxembourg, and State Street Corporation

State Street Legal Entity Views State Street Corp

SSB Luxembourg SSB GmbH

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State Street Corp

SSB Luxembourg SSB GmbH

State Street Legal Entity Views

• Reporting should adjust to different legal entity views
• State Street corporation product exposure is $20
• SSB GmbH product exposure is $30

$20 $10

ABC Bank

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Capital Allocation Optimization

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Global Services Global Markets Global Advisors Global Treasury

(In $ Billions)

Credit Credit Allocated

• Ability to charge for unused limits
• Increased communication across

lines of business

• Reallocation across business units

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Credit Approval Workflow

Creation Revision Approval Monitoring

• Product, legal

entity and group limit creation

• Shared Limits
• Manages each

user’s request

• Tracks progress
• f each request
• Exposure

utilization against limits

• Creates warnings

for breaches

• Limits and

exposures are managed at the lowest level, and aggregated across various dimensions

• Approvals

required for every request

• Multiple levels
• f approvals
• Segregation of

who can create a request and who can approve

• Displays

approval pipeline for each approver

• Renew single or

multiple limits

• Extend renewal

dates

• Create a temporary

limit

• Cancel a limit
• Accelerated limit

renewals for low-risk FX pre-settlement

• Reallocation

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Productivity Features of New Credit Approval Process

• Replacement of outdated, inflexible, decentralized systems and spreadsheets
• Introduction of new risk-sensitive processes
• Advanced limit setting functionality
• Efficiency – can include numerous counterparties in a single request
• Tabbed browsing enables multitasking across workflow, reports, and data maintenance
• “One source fits all” – limits, exposure, and reference data in one place
• Collaboration among business units who can view all counterparty product limits and

exposure

• Reduction in manual entry leads to increased accuracy

Business Unit

Proposes Limit

Analyst ERM Approver Limit “Live” in LMS

Performs Analysis Approves Limit

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Limit Management System Workflow

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Control Features of New Credit Approval Process

• Enhanced audit and tracking

– Approval record documenting all participants and their actions in a credit approval request – Workflow metrics to determine bottlenecks, identify process improvements and

• ptimize resource allocation
• Improved risk controls such as rules and alerts to ensure adherence to policy

guidelines – Signature authorities – Delegation of signoff authority – Auto escalation of policy breaches – Triggers to initiate data cleanup or ratings updates

• Independent risk data evaluation – ERM is not reliant upon business units for data
• Conditional approvals to enable business with controlled follow up on mitigation

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Approval Record

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Features of New Exception Management Process

• Ability to actively manage and monitor limits and concentrations
• Enterprise Risk Management oversight
• Monitoring capabilities

– Dashboard reporting across business and product groups – Utilization level parameters – Drill-down capability – Warnings and alerts

• Resolution capabilities

– Reallocation – Temporary Increase/Decrease – Permanent Increase – Conditions and tracking

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Warning Level Report

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Challenges and Lessons Learned

• “Field of Dreams” syndrome
• Reconcilement between corporate and international site requirements
• Importance of data quality
• Governance of exposure calculations
• Focus on Change Management and strong user support
• Credit policy changes based on the capabilities and power of the new limit

management system

• Importance of design considerations for maintaining complex limit aggregation points

verses inherent business value