Case Study: Global Card Products Firm

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Challenge: How does one of the world's oldest and most successful financial institutions assess its operational risk in order to lower the required risk-based capital and increase return on equity?

Action: Analyzed each of the firm's major business units and markets separately through a sustainable and replicable process. The process consisted of the following:

1. Developed a risk profile for the business unit or market from external risk databases, internal databases of prior issues, SOX issues, & audit issues.
2. Traveled to the business unit or market to conduct interviews with senior managers to get their identification and assessment of the risks they face.
3. Developed a risk assessment package for the business unit or market.
4. Conducted a workshop for the business unit or market to assess the completeness of the risk information, confirmed potential severity, and assessed frequencies.
5. Ran final data through risk capital model to develop a risk-based capital number.
6. Met with regulators to review capital number.
7. Plan to revisit units to redo process at least every two years.

Results: A significant reduction in risk-based capital required, allowing redistribution of capital for better deployment and resulting in a substantially-higher return on capital.