The recent financial and banking market turmoil has further highlighted the need to capitalise issuer specific risks on the trading book. This new regulation requires banks to measure and hold capital against specific risk that is incremental to those risks captured in the bankâs value-at-risk (VaR) internal model. By 2010, a bankâs IRC model must incorporate, at a minimum, credit default and migration risks for positions subject to credit risk, and this must be extended to capture idiosyncratic spread risk and equity price risk.
âSince any bank with an internal VaR model will be affected by this pending regulation, we anticipate overwhelming demand from banks looking to implement their IRC solution now, ahead of the regulatory deadline,â says Nigel Cairns, President and CEO, QuIC Financial Technologies. âAnticipating this demand, we welcomed the opportunity to work on their IRC solution when one of our long-term clients approached us some time ago. Their solution is currently under regulatory review, and if approved, will be one of the first submissions to gain regulatory approval.â
QuICâs IRC framework and building blocks provide Risk Managers with the ability to rapidly implement an out-of-the-box starter model that can be easily modified to meet their internal methodology. This gives them complete flexibility to implement their IRC solution quickly and easily, to identify any regulatory gaps earlier, and to understand the potential impact of IRC on their business well in advance of the January 2010 deadline, saving time, resources and maximising overall return-on-investment.
"As weâve experienced firsthand, banks developing an IRC solution will quickly discover that speed, performance and flexibility are critical, and extending an existing market risk solution to include IRC is not a viable strategy. Regulatory guidelines mandate a 99.9% confidence level, which for highly rated products can imply running ten million plus scenarios," stated Tony Coppellotti, QuICâs Chief Technology Officer. "Pushing an existing market risk solution to run so many scenarios will cause performance issues and have serious hardware and cost implications.â