Reference

Creation of a target picture for bank management

Considerably tightening regulatory requirements bring very different challenges to smaller, nationally regulated institutions and to larger ECB regulated institutions in terms of bank management and the implementation of regulatory requirements. In this regard, Sparkassen- Finanzgruppe has reshuffled the central responsibilities for bank management and allocated them to Sparkassen Rating und Risikosysteme (SR). This ensures optimal resource efficiency and standardized handling of these challenges.

The diversity of risk measurement and management methods used at savings banks makes a standardization of methods in bank management necessary in order to achieve the desired efficiency goals. As the responsible decision-making body within the Sparkassen-Finanzgruppe, the bank management committee (German: Fachrat Banksteuerung) assigned SR the task of creating a standardized target picture for methods for regulatory bank management in the savings banks organization.

The aim of the project “target picture for bank management” was to develop standards for risk management at savings banks as a prerequisite for the central provision of harmonized methodical standards as well as corresponding argumentation aids for the discussions of individual savings banks with the regulatory authority.

To achieve broad acceptance, besides SR and zeb, a project team was involved in developing the target picture which included more than 50 representatives from savings banks, regional associations, auditing agencies of the regional associations, the Deutscher Sparkassen- und Giroverband (German Savings Banks Association, DSGV) and Finanz Informatik (FI) from October 2015 to April 2016.

1. Systematic:
the implementation

The target picture for bank management was developed in three phases:

In the first project phase, a top-down target picture, which considered current and expected regulatory requirements, was derived based on fundamental principles of bank management. These requirements were then operationalized in so-called standards. At the same time, the current decentrally used methods, parameters and IT software modules, including results of ongoing projects and requirements, were collected in a bottom-up process.

After comparing the top-down target picture and the bottom- up current image, a second project phase identified needs for further development and bundled them into work packages.

Based on a detailed description of the work packages, including an analysis of the expected costs and benefits, the project team prioritized the work packages in a third project phase and transferred them into a road map for implementing the target picture.

2. Effective:
the results

In total, three central types of results were developed:

Standards for bank management:
For the methodical target picture for bank management, standard methods are recommended, which in particular include the methods for risk measurement and the management areas for risk-bearing capacity. Here, the management instruments should be structured in a modular way. Standard methods should be selected depending on the institution-specific risk profile.

Risk type document:
The risk type document makes distinctions and definitions of the major risk types and categories (e.g. the spread risk as part of market risk) and provides a description of the implications of risks on the P&L account of the savings bank.

Implementation road map for the prioritized work packages:
Work packages are defined and prioritized according to four essential subject areas (overarching, risk-bearing capacity/planning, market risk and liquidity risk). The road map represents the basis for the current and future implementation by SR.

3. Future-proof:
outlook and conclusion

Through the standardization of methods and parameters and their regular validation, a sustainable quality increase and assurance is achieved by means of groupwide applicable standards in bank management for savings banks. Moreover, process security increases because key processes are coordinated with the regulator and timely and regular update of concepts are ensured.

Finally, due to the systematic centralized processing of risk topics by SR, costs are reduced for local savings banks as methods and instruments are provided centrally. SR already took the first steps into the future in 2016 by preparing standards for the risk inventory and for parameters of periodic risk-bearing capacity.