The Assignment
A mid-level investing bank needed to implement a stress testing framework in accordance with guidelines issued by the central bank.
Our mandate was to develop a collaborative, auditable, repeatable, and transparent stress testing program to meet regulatory expectations, inform on the bank’s risk appetite framework, and improve strategic business decisions.
Our Solution
The solution included the following key features:
1. Stress testing
Our stress testing framework comprised of regular stress tests and scenario analysis with severe macroeconomic global downturn scenarios. We included all material risk types into our stress testing exercises which included portfolio- and country-specific stress tests.
2. ICAAP
Capital plan stress testing was performed to assess the viability of the capital plan in adverse circumstances and to demonstrate a clear link between risk appetite, business strategy, capital plan and stress testing.
3. Scenario Analysis
The stress test framework also consisted of defined macroeconomic downturn scenarios which were based on quantitative models and expert judgments, economic parameters such as foreign exchange rates, interest rates, GDP growth or unemployment rates.
4. Reverse Stress Testing
Reverse stress test were to be performed annually in order to determine the severity of scenarios that would cause the bank to become unviable.
5. Risk Reporting and Measurement
The stress testing framework supported regulatory reporting and external disclosures, as well as internal management reporting, to be presented to senior management as well as to the risk committees, who are responsible for risk and capital management.
Key Takeaways for the Client
A robust stress testing framework that integrated governance, documentation, data quality management, economic scenario development, loss modeling, forecasting, and reporting and incorporated participation of all stakeholders across business units.
The framework was integrated across asset classes and lines of business and enhanced risk management and was customized to the unique strategies and risks of the bank’s portfolio
INTERNATIONAL PARTNERS
NEW YORK & INDIA
OUR PARTNERS & PRINCIPALS
Raj Mittal Managing Partner - New York
Raj Mittal is the Founder & Managing Partner of Neural International Partners, New York. He is also a Senior Advisor, Risk and Compliance Consulting, with Genpact in New York. As a Visiting Faculty at Columbia University's School of Professional Studies, he teaches seminars on Enterprise Risk Management. Prior to setting up Neural International Partners, Raj retired from a global career with Citibank covering 30 years of International Banking experience. He retired as Managing Director & Global Head of Capital Allocations.
His other roles at Citigroup included:
- ICG Global Head of Operational Risk Analytics, New York
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Chief Operating Officer, Middle East Region, Bahrain
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Senior Banker, Financial Institutions Group, GCC Region, Bahrain
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Head of Product Development and Investments, Citi Islamic Investment Bank, Bahrain
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Senior Corporate Banker, New Delhi
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Chief Trader, Institutional Client Portfolio Management, Mumbai
He is considered to be a leading expert on Operational Risk Management specializing in Electronic Trading, Economic and Regulatory Capital, Stress Testing and Scenario Analysis. Raj has deep domain expertise and implementation experience across Risk Management and Quantitative frameworks for Operation Risk. He has interfaced extensively with Regulators in the USA and UK on Operational Risk including Economic/Regulatory Capital and Stress Testing methodologies.
Before joining Citibank, Raj worked as a Mortgage Backed Securities Analyst with Merrill Lynch in New York. Raj was also a member of the Economics faculty at the prestigious St. Stephen’s College in Delhi.
As a thought leader in Operational Risk he has been an Invited speaker at various forums:
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American Bankers Association, International Institute of Finance & The Clearing House discussions on Basel’s new proposed Standardized Measurement Approach for Operational Risk Regulatory Capital
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Society of Actuaries Annual meeting, New York
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Global Association of Risk Professionals, New York
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IBBM Basel II Conference, Kuala Lumpur
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NYU Stern Graduate School of Business, New York
Mr. Mittal earned an MBA from the Stern Graduate School of Business, New York University, a Masters degree in Economics from the Delhi School of Economics and a Bachelor's degree with Honors in Economics from Hindu College, University of Delhi.
Jonathan Greenman Partner - New York
Mr. Jonathan Greenman has extensive experience in risk management, business strategy, and financial planning. He began his career with Oliver Wyman & Company’s finance and risk practice. From there, Jonathan joined Citigroup and served as Managing Director and Head of Risk Strategy for the Institutional Clients Group. At Citigroup, he led initiatives to implement stress testing, economic capital reporting, improvements to loan loss reserving methodologies, Basel II / III, expense optimization, and strategic projects focused on corporate derivatives and client profitability. Most recently, he served as Managing Director at AIG in Enterprise Risk Management
Mr. Greenman’s Areas of Expertise include:
• Risk Management Governance • Basel III Capital / RWA • Model Validation
• Management Financial Reporting • Stress Testing Methodologies • Corporate Derivatives
• Quantitative Modeling • Strategic Plan Forecasting • Liquidity Risk
At AIG, Mr. Greenman served as:
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Managing Director, Head of Strategic Finance and Communications & Training in 2013
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Managing Director, Head of Risk Governance in 2012-13
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Managing Director, Head of Strategic Risk Analysis and Reporting in 2012
At Citigroup, Mr. Greenman served as:
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Managing Director, Basel II / III Finance lead for the Institutional Clients Group from 2009 to 2012
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Director, Strategy & Planning for the Global Corporate & Investment Bank
Mr. Greenman graduated magna cum laude from Harvard University in 1995 with a Bachelor of Science degree in Astrophysics, Astronomy and Physics. His Senior year Thesis was on “Validation of the Mass-Radius Relationship of White Dwarf Stars in Binary Systems”. His Coursework included Physics, Astronomy, Economics, Psychology, Anthropology, History of Science, Modern Art and Music, Medieval Literature and Political Philosophy
Dr. Mahendra Mehta, PhD Partner - India
Dr. Mahendra Mehta is the Chairman and Managing Director of Neural Technologies and a Partner in Neural Capital.
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He earned his PhD in Electrical Engineering and Artificial Intelligence from IIT Bombay and a Bachelors degree in Electrical Engineering from IIT Kharagpur.
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Doc Mehta, as he is popularly known, was the Chief Design Engineer of the radar systems of the Light Combat Aircraft (Tejas) project. He also worked alongside the President of India, Dr. Abdul Kalam on the Indian missile programs.
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He started his career in banking in 1988 when he joined Citibank as Head of Analytics for India. He was the spearheaded on several key projects in risk management and trading systems for Citibank Tokyo, New York and London.
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Subsequently, he was sent by Citibank as the Head of Derivatives for the Saudi American Bank (SAMBA), in which Citibank was a joint owner.
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Doc Mehta has conducted over 450 training programs during the past ten years for major investment and commercial banks, corporate treasuries, the Reserve Bank of India and for finance professionals as well as students from around the world
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Under his stewardhip, the Neural Group, has conducted training programs in various parts of the world, including New York, Switzerland, Singapore, India, Dubai, Bahrain, Saudi Arabia, the United Kingdom, Lebanon, Hungary, Muscat, Bahrain, Qatar, Egypt, UAE, Ghana and Greece.
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He has also appeared in Bloomberg TV to discuss Big Data and Analytics in its impact on banks & financial institutions.
Dr. Ranjan Chakravarty, PhD Partner - India
Dr. Ranjan Chakravarty is a Partner in NEURAL CAPITAL and a Senior Professor of Finance at a leading business school in India
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Dr. Ranjan was a Post Doctoral Fellow at Columbia University after he earned his Ph.D. in Finance from the University of Texas. His PhD dissertation was in "Market Microstructure"
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Dr. Ranjan has served as the Chief Risk Officer of the Singapore Mercantile Exchange and the Managing Director and Head of the Global Middle Office at DBS Bank, Singapore
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He was also a Managing Director and Head of Risk Management for Asia Pacific at Hypovereinsbank
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He has held other senior Risk Management positions in the U.S.A. at Bankers Trust (now Deutsche Bank), GE Capital and Bank of Boston (now Bank of America Merrill Lynch)
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Dr. Ranjan has published academic papers in the Journal of Banking and Finance along side leading academics such as John Hull
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He has appeared on Bloomberg TV with the legendary hedge fund manager, Jim Rogers, who was a Partner of George Soros in the Quantum Fund.
RAJAT BHATIA Partner - India
Mr. Rajat Bhatia is the Founder & CEO of NEURAL CAPITAL.
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He is also the Dean of the School of Financial Engineering at Indian Institute of Quantitative Finance and the Chairman of the Board of Advisors of Invenzo Labs.
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Mr. Bhatia is an international investment banker with a cumulative 27+ years of global experience with the world’s top tier investment banks.
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He has worked for Lehman Brothers, London, Merrill Lynch Capital Markets, Hong Kong, Citigroup Global Asset Management, London, Citigroup India, Williams Energy in the USA and Booz.Allen & Hamilton, Sydney.
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A very multi cultural professional, Rajat has lived in seven countries on four continents and traveled on work, business and tourism to several countries.
- He has taught courses on Advanced Financial Modeling, Corporate Valuation, Derivatives from vanilla to the exotic, Portfolio Management, Alternative Investments, Equity Markets, Fixed Income Markets, Swaps Markets and Commodity Markets at global financial institutions such as Blackrock, Lehman Brothers, Citigroup, Barclays, Macquarie, Credit Suisse, Deutsche Bank, OCBC Bank, CIMB Bank, JP Morgan, Saudi American Bank (SAMBA) and the Asian Banking School in New York, Singapore, London, Mumbai, Delhi NCR, Pune, Jakarta, Kuala Lumpur, Dubai, and Riyadh.
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Rajat was educated at Columbia University where he was a Dean’s Fellow at the School of International Affairs. He earned a Master’s degree with a specialization in International Banking & Finance by completing advanced course work at the Columbia Business School.
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He is also an alumnus of the Indian Institute of Management, Ahmedabad, St. Stephen’s College, Delhi, La Martiniere for Boys Calcutta and De Nobili School, Dhanbad. At St. Stephen's College, he was the recipient of the Cambridge Essay Prize for 1985. At La Martiniere for Boys, Calcutta he was awarded the Founder's Gold Medal for ranking first in the nationwide Indian Certificate of Secondary Education (ICSE) examinations in 1980
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In September 2007, he published a paper in the Hedge Fund Journal, London titled, "Financial Chernobyl or Manageable Risk : The Brewing Storm in sub prime and CDO markets". The paper predicted the start of the Financial Crisis as the Dow Jones Industrial Average made it's all time high in November 2007
https://thehedgefundjournal.com/financial-chernobyl-or-manageable-risk/