NEW YORK Oct. 18, 2004--Standard & Poor's Ratings Services' approach to
assessing the Trading Risk Management (TRM) practices of financial
institutions focuses on the robustness of policies, infrastructure, and
methodologies (an approach it calls PIM) that govern the trading operations
of financial institutions, according to a report released today by Standard
& Poor's Ratings Services.
"At a holistic level, Standard & Poor's believes that a thorough assessment of the TRM practices within financial institutions must span multiple domains, including market risk, credit risk, operational risk, business risk, reputation risk, audit, and governance," said Standard & Poor's risk management specialist Prodyot Samanta. "We take our cue from the fact that historically, serious losses in trading operations have been traced to a series of weaknesses around issues related to policies, infrastructure, and methodologies.
"We have developed a series of questions intended to delve into the policies, processes, and controls for identifying, measuring, and monitoring risks of the trading operations within financial institutions," Mr. Samantha said. "Most of the issues are not amenable to quick, factual answers, so the focus of the questions is to elicit insights into the risk culture of the firm, and how that affects its choices on policies,processes, and controls."
Standard & Poor's PIM approach to assessing the TRM practices of financial
institutions provides for an integrated view of risk, as it allows for the TRM practices within financial institutions to be assessed across multiple business lines, portfolios, and products. In addition, it allows for scalability within an institution. If an institution enters into a new business or geographic location, or if it adopts new methodologies or processes, the PIM approach can still be applied consistently.
Standard & Poor's envisions that the PIM approach to assessing the TRM practices at financial institutions will provide us with a deeper awareness of the ownership of and accountability for risks.
The full report, "The PIM Approach to Assessing the Trading Risk Management Practices of Financial Institutions" is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system.