A Risk Professional�s Survival Guide
Applied Best Practices in Risk Management
Wiley Finance Series

A Risk Professional's Survival Guide fills a critical gap left by existing risk management texts. Instead of focusing only on quantitative risk analysis or only on institutional risk management, this book takes a comprehensive approach. The disasters of the recent financial crisis taught us that managing risk is both an art and a science, and it is critical for practitioners to understand how individual risks are integrated at the enterprise level.

This book is the only resource of its kind to introduce all of the key risk management concepts in a cohesive case study spanning each chapter. A hypothetical bank drawn from elements of several real world institutions serves as a backdrop for topics from credit risk and operational risk to understanding big-picture risk exposure. You will be able to see exactly how each rigorous concept is applied in actual risk management contexts. This book includes:

• Supplemental Excel-based Visual Basic (VBA) modules, so you can interact directly with risk models
• Clear explanations of the importance of risk management in preventing financial disasters
• Real world examples and lessons learned from past crises
• Risk policies, infrastructure, and activities that balance limited quantitative models

This book provides the element of hands-on application necessary to put enterprise risk management into effective practice. The very best risk managers rely on a balanced approach that leverages every aspect of financial operations for an integrative risk management strategy. With this book, you can identify and control risk at an expert level.

Preface ix

Acknowledgments xi

About the Author xiii

Chapter 1 Navigating Risk at Sifi Bank 1

Chapter 2 Overview of Financial Risk Management 33

Chapter 3 Risk Governance and Structure 61

Chapter 4 Economic Capital, Risk-Adjusted Performance, and Capital Allocation 83

Chapter 5 Credit Risk Theory 115

Chapter 6 Consumer Credit Risk Measurement 145

Chapter 7 Commercial Credit Risk Overview 193

Chapter 8 Credit Risk Mitigation 223

Chapter 9 Interest Rate Risk 255

Chapter 10 Market Risk 287

Chapter 11 Liquidity Risk Management 311

Chapter 12 Market Risk Hedging 345

Chapter 13 Hedging Interest Rate Risk 375

Chapter 14 Operational Risk Management 405

Chapter 15 Model, Regulatory, Legal, and Reputational Risk Management 431

Chapter 16 Toward Integrated Risk Management 461

Answer Key 477

Index 497

CLIFFORD ROSSI is Professor-of-the-Practice and Executive-in-Residence at the Robert H. Smith School of Business at the University of Maryland. He also has nearly 25 years' experience in banking and government. Dr. Rossi's most recent position was Managing Director and Chief Risk Officer for Citigroup's Consumer Lending Group. He has also held senior risk management positions at Freddie Mac and Fannie Mae. Dr. Rossi is frequently quoted on financial policy issues in major newspapers and has appeared on Fox News, C-SPAN, and CNN's Situation Room.