Copenhagen2005

Venue: Heerings Gaard, Overgaden Neden Vandet 11, Christianshavn, Copenhagen

In Eurobanking 2005, thirty papers were presented and discussed by fifty-one participants from sixteen countries. The Highlights aim at providing a brief overview on major trends, issues and practical points raised and discussed in plenary and stream sessions as well as informal discussions throughout the Meeting. Hopefully, they might draw attention, trigger further thought, and possibly lead to some action within our own organisations and the wider environment.

A variety of current practical issues were examined in Eurobanking 2005. Viewed from different angles, the papers and discussions covered – directly or indirectly - the following:

q Risk management papers dominated, more than ever before, this year’s Eurobanking Meeting. Following the publication of the Basel II framework in June 2004 and the draft EU Directive in July the same year, credit risk, rating, market risk, country risk, and capital management received, as expected, a great deal of attention.

q The Basel II framework has been adjusted mainly with regard to the trading book, but the quantitative impact is still contested – a survey of US banks has been completed, the one on German banks is being completed and a global survey is in process. While the new Directive is expected to go through the European Parliament without much trouble, implementation deadlines might change, although Western European banks seem, on average, to be better prepared than even some regulators.

q The wider regulatory framework – which includes Basel II, IAS, compliance, insurance supervision, the evolving financial services strategy, the expected directive on corporate governance, corporate social responsibility, and the various IT-based standards including the ones on business continuity management – and the limited coordination of all these facets have perhaps led to what one might call ‘over-regulation[1]’. A clear, simple and flexible wider framework is needed which would allow for coordination at least on the organizational structure level.

q The confusion generated by this evolving pattern of regulation is not helping much financial institutions - let alone corporates and SMEs – that are called to comply. Two papers have again referred to this situation, suggesting that wider frameworks might be conceived. A third paper suggested a framework for capital management, while a plenary paper proposed a framework of decision support tools.

q In the first of two plenary sessions, the question was asked: Does quantitative information support prudent decision-making? Following a discussion of selected decision support tools (slide # 6 gave a useful framework/overview), the conclusion reached was that Management Information is meant to support management decisions. It is not a substitute for good management … yet.

q While some banks have consciously never implemented activity based costing, some other banks that have implemented this tool are now having second thoughts about it. Furthermore, having carefully considered all pros and cons, some banks have consciously never opted for off-shore outsourcing, which seems to be a major trend.

q Noting that effective corporate networking presupposes a cooperative (as opposed to a competitive) corporate culture, the plenary session on networking concluded that as a working group of professional bank practitioners, Eurobanking has been especially geared to offer its participants a unique opportunity for effective networking ever since it was founded in 1975. The ‘Eurobanking spirit’ of free and informal exchange of views and experiences has been the hallmark of the Group long before the need and benefit of networking among companies and among individuals was realized as being of key significance. Actual Eurobanking networking cases were presented, and specific ways to further improve its effectiveness and efficiency were suggested and discussed.

q The implementation cost for integrating payment systems is estimated at 10 billion euro.

q The communication gap between Stream-A (traditional Eurobanking areas) and Stream-B (Risk Management) participants continues to recede, with risk being incorporated at both strategic and tactical levels, as it was shown by papers on capital management and decision support tools. Several factors are also helping to narrow the corresponding gap between executive management (including business executives) and RM professionals. However, further and urgent efforts are required for supervising professionals and supervisee professionals to adopt a common practical perspective.

In this respect, it pays to remember the conclusion reached by two different papers: (a) ‘Simplify, and then simplify even further’; (b) ‘Think of any financial product – however complex - in very simple risk terms’.

[1] Indeed, the 2005 CSFI ‘Banana Skins’ survey (which ranks the top thirty banking risks/issues by their perceived severity and analyses their potential impact on banking), ranks ‘regulatory overkill’ as the top risk/issue facing banks, up from 6^th place in 2003. The report finds that over-regulation saps bank resources, reduces risk diversification and creates a false sense of security. Many senior bankers described regulation as ‘out of control’. A closely related issue is ‘corporate governance risk’ (3rd). Although banks are seen to have weaknesses in this area, this issue also scores strongly because respondents perceive it to be part of the regulatory threat. A senior CPA executive suggested that “many bankers are worried that regulation is beginning to stifle innovation and judgment across the industry. While few challenge the objectives of regulators, there is a clear need for further debate on how these are implemented.”

Other fast-rising risks/issues are ‘hedge funds’ (5th) and ‘electronic fraud’ (6th), as well as ‘currency risk’ (7th). Other high level risks include ‘credit risk’ (2nd) and ‘derivatives’ (4th), both of which featured prominently in the 2003 survey. Unrest in the Middle East also gave a strong boost to ‘commodities’ (up from 26th to 14th), where potential instability in the oil and gold markets was seen as threatening. However broad concerns about ‘macro-economic trends’ have eased (down from 3rd to 10th), along with fears of ‘political shocks’ and ‘terrorist attacks’, as reflected in the sharp decline of concerns about ‘business continuation’ (down from 5th to 19th). Worries about the strength of the ‘insurance sector’, which featured strongly last time, have also diminished (down from 4th to 11th).

The 2005 top ten banking risks/issues (2003 ranking in brackets) are as follows: 1 Too much regulation (6); 2 Credit risk (2); 3 Corporate governance (8); 4 Derivatives (1); 5 Hedge funds (15); 6 Fraud (11); 7 Currencies (18); 8 High dependence on technology (12); 9 Risk management techniques (16); and 10 Macro-economic trends (3).

Even by 2003, a Kennedy Information report on global financial services as a consulting marketplace identified ‘regulation’ as the leading financial services market trend, followed by a changed economic environment, new risks to manage, product commoditisation, and demanding more of consultants

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Eurobanking May 2005, Copenhagen
Paper Summaries	Conference Report		Conference Picture Gallery

Sunday 22 May 2005
6.00 pm	Delegate and Partner Registration
7.00 pm	Welcome to Eurobanking 2005
7.30 pm	Dinner

Monday 23 May 2005
9.30 am	Peter Schütze, Nordea: Opening address
	Stream A	Stream B
	Session: Offers to customers Session Leader: Per-Goeran Persson	Session: Credit risk management Session Leader: Diederik Fokkema
10.15 am	A1. Steffen G. Meusel, Bundesanstalt für Finanzdienstleistungsaufsicht: Certificates – a new risky product for canny investors? (GER2)	B1. Ulrich Krüger, Deutsche Bundesbank: Time series properties of a rating system based on financial ratios. (GER1)
11.00 am	Coffee Break
11.15 am	A2. Paul Wessels and Sabine Detering, ABN AMRO: Pension funds in private equity. (NL3)	B2. Ennio La Monica, Banca Carige SPA: Introduction of internal rating system in a medium-size retail bank. (ITA2)
12.00 am	Session: Emerging markets A3. Mika Erkkilä, Nordea: The reform of the Russian banking sector – first experiences. (FIN2)	B3. Anders Wulff-Andersen, UBS: Credit risk hedging. (SWI1)
12.45 pm	Lunch
	Session: Planning and Control Session Leader: Tom Conlon	Session: Credit risk management (continued) Session Leader: Diederik Fokkema
2.00 pm	A4. Eva-Barbara Graber, Erste Bank: Corporate control in Austrian saving bank sector – development and experiences. (AUS1)	B4. Samu Peura, Sampo: Multi-state default: Applications to risk measurement and impairment provisions. (FIN4)
2.45 pm	A5. Mirna Segota, Erste & Steiermarkissche Bank d.d.: Call centre performance: From operational efficiency to customer centric approach. (CRO1)	B5. Stina Kring Andersen, Danske Bank: Loss Given Default - Estimation and Application. (DEN1)
3.30 pm	Coffee Break
3.45 pm	A6. Susanne Kroiss & Friedrich Sulzer, RZB: Personnel oriented resource allocation. (AUS2)	B6. Abdelkader Bousabaa, Crédit Agricole: Estimation of default correlations. (FRA1)
4.30 pm	A7. Chris Jones, APACS, Payments. (UK1)	B7. Giovanna Campagnoni and Chiara Capelli, UniCredit: From rating to Credit Var: The experience of Unicredit Group using BIS 2 framework for the computation of economic capital. (ITA1)
5.15 pm	End of Monday’s delegate program

Tuesday 24 May 2005
	Stream A	Stream B
	Session: Risk strategy Session Leader: George Matthews	Session: Market risk management Session Leader: Antti Korhonen
9.30 am	A8. Declan O’Mahony, Nova KBM: The significance of rating, risk management and business continuity outside the financial industries. (SLO2)	B8. Dr. Jörg Kienitz, Deutsche Postbank: Analysis of Hedging Strategies for Constant Maturity Structures. (GER3)
10.15 am	A9. Tim van Hest, Rabobank: Budgeting active risk for pension funds. (NL1)	B9. Dr. Lampros Kalyvas, Bank of Greece: Accuracy and reward of market risk quantification techniques. (GRE1)
11.00 am	Coffee Break
11.15 am	A10. Eric Salomon, Crédit Agricole: Stress-testing and risk strategy. (FRA2)	B10. Rainer Häberle, UBS: Wolf in sheep’s clothing: The active investment strategies behind index performance. (SWI2)
12.00 am	A11. Iztok Valencic, Nova KBM: Defence against risk. Risks of no connection (IT, processes, defence). (SLO1)	B11. Wolfgang Schmidt, HfB: Interest rate convexity and the volatility smile. (GER4)
12.45 pm	Lunch
	Session: Strategic management Session Leader: Susanne Kroiss	Session: Financial fragility and Country risk Session Leader: Ildiko Jozsa
2.00 pm	A12. Dr. Adrian Alscher, UBS: Value-based analysis of strategic management decisions. (SWI4)	B12. Jarmo Pesola, Bank of Finland: Macroeconomic determinants of banks’ loan losses in selected countries. (FIN3)
2.45 pm	Plenary session: Networking (GRE2)
4.00 pm	End of Tuesday’s delegate program
5.00 pm	Sightseeing, departure from Heerings Gaard, Overgaden Neden Vandet 11
7.00 pm	Dinner in Tivoli Gardens, Restaurant Balkonen

Wednesday 25 May 2005
	Stream A	Stream B
8.00 am - 9.25 am	Executive Committee Meeting.
	Session: Strategic management (continued) Session Leader: Susanne Kroiss	Session: Financial fragility and Country risk (continued) Session Leader: Ildiko Jozsa
9.30 am	A13. Esa Jokivuolle, Bank of Finland: Aligning regulatory capital with economic capital. (FIN1)	B14. Marco van der Burgt, ING: Development of rating models and event probabilities for country risk. (NL4)
10.15 am	A14. Per-Göran Persson, UBS: A capital management framework. (SWI3)
11.00 am	Coffee Break
11.30 am	Eurobanking 2006
12.00 am	Final lunch

Monday 23 May 2005
9.00 am	Departure from hotels
10.00 am	Frederiksborg Castle
12.00 am	Bus transfer
1.00 pm	Lunch at Louisiana
2.00 pm	Louisiana
3.30 pm	Bus transfer
4.30 pm	Arrival at hotels

Tuesday 24 May 2005
10.00 am	Walking Sightseeing in Copenhagen, departure from Hotel 71 Nyhavn
12.30 am – 1.30 pm	Danish Lunch, Restaurant Huset ved det Groenne Trae, Gammel Torv 20
5.00 pm	Sightseeing, departure from Heerings Gaard, Overgaden Neden Vandet 11
7.00 pm	Dinner in Tivoli Gardens, Restaurant Balkonen

Eurobanking 2005 Programme