Enterprise Risk Management at Commerzbank|Enterprise Risk Management|Case Study|Case Studies

Enterprise Risk Management at Commerzbank

            
 
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Case Details:

Case Code : ERMT-018
Case Length : 18 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Commerzbank
Industry : Banking
Countries : Germany

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Excerpts

Overview of Risks

Commerzbank's risk-policy guidelines were laid down by the Board of Managing Directors. The Chief Risk Officer (CRO), a member of the Board was responsible for implementation of risk policy throughout the Group. In addition to assuming responsibility for the Risk Control (ZRC) staff department, the CRO was also in charge of the Global Credit Operations (ZCO) and Credit Operations Private Customers (ZCP) banking departments.

Special committees to bundle and monitor decisions relevant for risk supported the Board of Managing Directors in their decision-making. The Risk Committee (RC), chaired by the CRO, dealt with market, credit and operational risks and the Bank's overall risk situation...

Enterprise Risk Management | Case Study in Management, Operations, Strategies, Enterprise Risk Management, Case Studies

Credit Risk
Corporate Business
Since the early nineties, Commerzbank had been using detailed rating and scoring procedures for checking creditworthiness and standardizing credit decisions. Borrowers were assigned to ten different rating levels, ranging from 1.0 (exceptionally good creditworthiness) to 5.5 (very weak creditworthiness) and two rating levels for problem loans (6.0 and 6.5 for work-out commitments)...

Market Risk
Since 2001, Commerzbank had been using a model for monitoring specific interest-rate risks. It was one of the first banks to receive approval from the German Financial Supervisory Authority to work out the capital backing required for specific interest-rate risks on the basis of this internal model. Commerzbank believed the model enabled it to save a significant amount of capital. Commerzbank also used an internal model to measure the capital required to cover general market risk...

Liquidity Risk

Group Treasury (ZGT) was responsible for managing liquidity risk. The task of liquidity management was to ensure that Commerzbank was solvent even during stress situations. ZGT prepared liquidity balances and made cash-flow forecasts, which were constantly reviewed in the course of the year...

Operational Risk
In 2001, Commerzbank created an operational risk management framework. The central element of the organizational structure was the newly formed Operational Risk Committee, which was chaired by ZRC and reported to the Bank's Risk Committee...

Legal Risk
The identification and handling of legal risk was entrusted to Legal Services (ZRA). ZRA produced guidelines and standard contracts, and also instructions for their implementation and monitoring...

Strategic Risk
Strategic risk could not be measured in quantitative terms. So strategic decisions were subject to qualitative controls. Ultimate responsibility regarding strategic decisions lay with the Board of Managing Directors. Some decisions also required the approval of the Supervisory Board...

Independent Control: Internal Auditing

All risk-control and risk-management activities were subjected to examination by the Internal Auditing department (ZRev). It formed an integral part of the risk-control and risk-management system, and worked independent of business processes...

Exhibits

Exhibit I: Definitions
Exhibit: II
Exhibit III: Commerzbank: Minimal & Maximal Value-at-Risk for Group & Trading units
Exhibit IV: Commerzbank: Balance Sheet
Exhibit V: Commerzbank: Income Statement
Exhibit VI: Commerzbank: Consolidated Profit Statement


 

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