Enterprise Risk Management at BNP Paribas


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Case Details:

Case Code : ERMT-021
Case Length : 15 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : BNP Paribas
Industry : Banking
Countries : Global

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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

Five principles defined the scope of BNP's Global Risk Management Department (GRM)

A. Active Control

GRM was responsible for ensuring that the risks taken by the bank were compatible with its profitability and credit rating objectives. GRM regularly reported to the Internal Control and Risk Management Committee of the Board on its main findings concerning risks, and how they were measured and consolidate them on a Group-wide basis...

B. Strong Independence

GRM reported directly to Executive Management and was outside any business line or territory authority. GRM had cross-functional teams in the main territories...

C. Wide Range of Competence
GRM had responsibility for all risks arising in the course of the Group's business. There were five main categories of risk: Credit risk, Market & Liquidity risk, Operational risk, Insurance risk (risk due to the specific risk arising from unexpected changes in claims experience) and New risks (risks generated by changes in the banking business)...

D. Intervention at All Levels of The Risk-Taking and Monitoring Chain
As part of risk decision-making, GRM performed the following core functions:

Policy: GRM made recommendations to Executive Management concerning risk acceptance policies and was responsible for approving new businesses and products that exposed the Group to new types of risk...

E. Global Organisation
GRM teams were based in the various territories. These teams were placed under the direct authority of GRM and had a clear functional reporting relationship with GRM. In some cases, where the risks involved were of a different nature as in Retail Banking, the business line concerned had its own risk management function...

Credit Risk

BNP's lending operations were subject to the General Lending Policy approved by the Risk Policy Committee chaired by the Chairman and Chief Executive Officer. The Group-level strategy was then rolled down to the various divisions and business lines, which were fully responsible and accountable for managing risks. The group aimed at achieving a sound diversification of risks among borrowers and industries, taking into account country risks. The Group's overall portfolio of commercial loans and commitments totalled EUR 387 billion as on 31 December 2002, down 3.5% from the figure as on 31 December 2001...

Market and Liquidity Risks
Overall responsibility for managing market and liquidity risks lay with the Market Risk Committee headed by one of the Chief Operating Officers and backed by GRM. The Committee met once a month to approve risk management methods and procedures, define exposure limits and check compliance with these limits...

Operational Risk
Operational risk correspondents had been appointed in each business line and each corporate department, to ensure that Group operational risk management guidelines were implemented. They were backed by numerous risk officers within their units. Various initiatives had been launched to produce detailed measurements of operational risk, to comply with future regulatory requirements. An Incident Management Policy and an Incident Management System ("IMS") had been established in order to collect detailed historical loss data, for the entire Group...

Information Protection

BNP's information systems security policy was monitored by Group Management. Systems security considerations were factored into all IT projects from the outset. Periodic monitoring was used to ensure that the level of systems security was maintained. This was backed up by a technical intelligence service to ensure that the latest advances in systems security were implemented...

Exhibits

Exhibit I: BNP Doubtful Commitments
Exhibit II: BNP Doubtful Loans breakdown by Type of Customer
Exhibit III: BNP Doubtful Loans breakdown by Geographic Area
Exhibit IV: BNP Doubtful loans Industry Breakdown


 

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