Enterprise Risk Management at Credit Suisse

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Case Details:

Case Code : ERMT-024
Case Length : 27 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Credit Suisse
Industry : Banking
Countries : Switzerland

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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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Overview of Risks

CS's risk management strategy was driven by three main objectives - to preserve the Group's capital base, to optimize the allocation of capital and to foster a proactive risk culture.

CS considered the following risks to be important.

• Market risk - defined as the risk of a potential loss in fair values arising from adverse changes in market rates and prices...

Risk Management Governance
CS performed risk management oversight at several levels:

• The Group Board of Directors and Boards of Directors of other legal entities provided direction, supervision and control for the Group. They set guidelines for the Group's general risk policy and strategy and regularly reviewed major risk exposures.
• The Audit Committee monitored the adequacy of the financial reporting process and systems of internal controls, accounting, risk management, and legal and regulatory compliance, as well as the independence and performance of the external and internal auditors...

Economic Risk Capital
CS defined Economic Risk Capital ((ERC), as the economic capital needed to remain in business even under extreme market, business and operational conditions. CS believed that by providing a common language and terminology for risk across the Group, ERC had increased risk transparency and promoted know-how sharing across the Group. The primary merit of ERC lay in its ability to provide meaningful signals regarding risk trends over time. However, inter-firm, economic capital comparisons were not meaningful, as there was substantial variation across institutions in terms of the definition of economic capital, model coverage, assumptions, data series and implementation specifics...

Market Risk
Significant risk management responsibilities were assigned to risk management committees.

The CSFS Asset and Liability Management Committee, was responsible for supervision and analysis of the balance sheet and considered interest rate forecasts and the corresponding risk implications.

The CSFS Risk Management Committee supervised and oversaw the development of all major and relevant risk exposures of the respective risk categories...

Liquidity and Funding Risk
Liquidity and funding risk was the risk that the bank might not be able to fund assets or meet obligations at a reasonable price. CS managed its funding requirements based on business needs, regulatory requirements, rating agency criteria, tax, capital, liquidity and other considerations. Although CS operated through separate business units, its liquidity needs had to be satisfied on a consolidated basis and, in the case of banking units, on both a consolidated and legal entity basis...

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