A Research On Risk Management - 1800 Words

Risk management is a paramount activity in order to ensure long-term survival in the banking industry. In order to remain as a going concern JPM has put in place vigorous infrastructure to mitigate and measure risks across the firm. Such infrastructure includes a risk department overseen by the Firm’s Chief Risk Officer (CRO) and an asset-liability committee (ALCO) which monitors the Firm’s balance sheet, liquidity risk and interest rate risk. The primary duties of the CRO as defined by JPM (2014 Annual Report, pg. 110) are as follows: †¢ Establishing a comprehensive credit risk policy framework †¢ Monitoring and managing credit risk across all portfolio segments, including transaction and line approval †¢ Assigning and managing credit†¦show more content†¦Credit Risk Define: Credit risk is defined by JPM as â€Å"the risk of loss arising from the default of a customer, client or counterparty (2014 annual report, pg. 110)†. This fairly broad definition encompasses large corporate clients, institutional clients and individual consumers. In addition, JPM identified that the primary drivers of credit risk arise from (1) residential real estate, (2) credit card, (3) auto loans, (4) business banking and (5) student lending businesses. In order to further define the characteristics of credit risk, the firm uses methodologies such as (1) a scored exposure rating, and (2) a risk exposure rating to estimate the likelihood of counterparty default. Scored Exposure As securities are underwritten and issued to customers, they are transferred or essentially securitized into a portfolio. Scored exposure is used a term that encompasses the scored portfolio held in consumer and community banking (CCB). This portfolio predominantly includes residential real estate loans, credit card loans, certain auto and business banking loans and student loans (i.e., the loans issued by consumer bank Chase, as acquired by investment bank JPM following the alleviation of the Glass Steagall Act). According to JPM, credit losses on their CCB loans are measured based on â€Å"statistical analysis of credit losses over discrete periods of time and estimated using portfolio modeling, credit scoring, credit scores, and other risk factors†.