Risk Management Conference

Brandon Davies 13th October 2005

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1980’s • Informal • Limited number of general market risk businesses • Globalization just starting

• Companies starting to play in more geographic markets

• More risk takers coming into market

1990’s • Derivatives coming to forefront • Emerging Market plays • Internet • Instantaneous communication • Enhanced systems and technology • Major corporate defaults and scandals • Internationalization of markets • Recognition of risk as a corporate function across departments • Hedge funds growth • Start of International banking regulation • Fall of Japan, Russian default

2000’s • Markets now global • Internet bubble burst • Regulators driving change • Systems link all parts of world • Country risks recognized as interdependent • Markets react similarly in seconds • Vendors offer global solutions • Risk-based capital • Increasingly sophisticated risk/derivative solutions • Complexities increase • Customer/shareholder uncertainty •Institutional funds flow into alternative investment products • Need for risk-based culture

Evolution of Risk Management

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• Understanding risks improves profitability • reduces uncertainty • encourages profitable risk taking • identifies unprofitable risk avoidance and offsets • improves investment decisions and capital allocation

• Focusing on Risk protects capital • helps prevent surprises • assists in eliminating undesirable risk concentrations

• Good risk management • improves confidence • enhances credibility

• Results • increased shareholder confidence • continued investment by third parties in company • additional opportunities presented by lenders and customers

Benefits of Investing in Risk Management

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Risk Manager

Board of Trustees

Regulators

Company management •Front, mid and back office staff

•Information Technology

External vendors •Clearing brokers •Executing brokers •Prime brokers •Custodian

Clients

Risk Manager as Communicator

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Mission Statement

To be the leading professional association for risk managers, managed by and for its members dedicated to the advancement of the risk profession through education, training and the promotion of best practices globally

Adopted by GARP’s Board of Trustees on February 11, 2003

Global Association of Risk Professionals, Inc.

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GARP Digital Library LLC • Supporting research and

continuing education

• GARP Risk Review

• Publishing

GARP Risk Academy LLC • Certificate in banking risk and

regulation

• Credit, Market, Operational & Treasury Risk diploma programs

• Energy diploma program

• “Customized” certification programs

GARP Center for the Study of Risk Management • Catalog of “staple” and advanced courses for financial professionals • Train-the-trainer programs • Workshops and training courses • Customized in-house training • e-learning • Continuing education

Global Association of Risk Professionals, Inc. • FRM® Program • Memberships • Conventions & events • Website • Career Center

Global Association of Risk Professionals, Inc.

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• World’s most prestigious global risk management certification program

• Practice orientated

• Determines a candidates ability to dynamically measure and manage financial risk in real-world settings • Benchmark’s whether individual is qualified to provide competent advice based on globally recognized industry standards

•Committee Chair: Dr. René Stulz, Everett D. Reese Chair Monetary Economics, Fisher College of Business, Ohio State University

6,535 FRM certified holders

Representing over 3,000 different institutions globally

3rd Edition

2nd Edition

Q & A Interactive CD

Financial Risk Manager (FRM®) Program

1st Edition

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Unprecedented Growth

108 262

769

1,238

2,958

3,584

4,369

5,726

6,689

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

As of 9/30

22% incre

ase

31%% incre

ase

139% increase

21% increase

17% increase

108 262

769

1,238

2,958

3,584

4,369

5,726

6,689

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

As of 9/30

22% incre

ase

31%% incre

ase

139% increase

21% increase

17% increase

Financial Risk Manager (FRM®) Program

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Companies With 5 or More FRM Candidates

Objective Evidence of FRM’s Benchmark Status

105

185

41 New In 2004

219

98New

In 2005

0

50

100

150

200

250

2003 2004 2005

18% Inc.

76% Inc.

Of the 64 companies from 2004 no longer represented by five or more candidates in 2005, 88% have at least two or more registered candidates this year.

Financial Risk Manager (FRM®) Program

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2005 Companies with 5 or More FRM Registrants

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Administered at 64 locations around the world in 2005 Amman, Jordan Edinburgh, Scotland Madrid, Spain Seattle, Washington

Auckland, New Zealand Frankfurt, Germany Manila, Philippines Seoul, South Korea

Bahrain Gainesville, Florida Melbourne, Australia Shanghai, China

Bangalore, India Glasgow, Scotland Mexico City, Mexico Singapore

Bangkok, Thailand Hong Kong, China Milan, Italy Stockholm, Sweden

Beijing, China Houston, Texas Montreal, Canada Sydney, Australia

Beirut, Lebanon Istanbul, Turkey Moscow, Russia Taipei, PRC

Bermuda Jakarta, Indonesia Mumbai/Bombay, India Tel Aviv, Israel

Boston, Massachusetts Jamaica, West Indies Munich, Germany Tokyo, Japan

Cairo, Egypt Johannesburg, South Africa Muscat, Oman Toronto, Canada

Caracas, Venezuela Karachi, Pakistan New York City, New York United Arab Emirates

Charlotte, North Carolina Kuala Lumpur Nicosia, Cyprus Utrecht, Netherlands

Chicago, Illinois Kuwait City, Kuwait Paris, France Vancouver, Canada

Columbus, Georgia Lagos, Nigeria Prague, Czech Republic Warsaw, Poland

Columbus, Ohio London, England San Francisco, California Washington, D.C.

Dublin, Ireland Los Angeles, California Sao Paulo, Brazil Zurich, Switzerland

Financial Risk Manager (FRM®) Program

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• Certificate & Diploma Programs in Banking Risk and Regulation

• Diploma in Energy Risk Management

“Creating a Culture of Risk Awareness” Programs designed for the non-professional risk manager E.g., sales, accounting, technology, analysts, operations staff

• Course Syllabus reviewed by GARP global risk management experts

• Partnerships with local and regional organizations for course delivery

• Offered in local language

GARP Risk Academy

Committee Chairman • Banking Risk & Regulation Committee: Dr. Xavier Freixas, Dean, Business School, Universitat Pompeu Fabra • Energy Risk Management Committee: Dr. Craig Pirrong, Director of Energy Markets, C.T. Bauer College of Business, Univ. of Houston

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For the risk professional

Financial Risk Manager Program •FRM® Certification (6,535 holders globally)

Compulsory Familiarize students with framework for supervision of banks

+

Banking Risk & Regulation

Introducing basic risk concepts and understanding the need for regulating risk within a banking environment, including an overview of Basel

Certificate in Banking Risk & Regulation

(CBRR) =

Credit Risk &

Regulation

Operational Risk &

Regulation

Treasury Risk &

Capital Regulation

Market Risk &

Regulation

= DIPLOMA

1 of the following within 6 months of completing compulsory module

Examination Examination

Risk Governance &

Supervision

Examination

Examination

Examination

Examination

Intro. to risk & the reg. of banks

Risk-based regulation +

Physical Energy Markets

Examination

+ Energy Risk = Energy Risk

Diploma (ERD)

Managing Energy

Risk

Setting a global base of understanding

Creating a corporate culture of risk awareness for non-risk professionals throughout the entire organization

Setting a global base of understanding

Examination

Examination

GARP’s Professional Development & Credential Framework Setting Standards Around the World

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Digital resources for finance research and education

1. Accessible globally through GARP website 2. In partnership with the world’s largest business book

publishers 3. Books and articles reviewed and selected by GARP

risk management professionals 4. Robust searchable database 5. Create own e-book 6. Initial rollout in November 2005 with over 100 readings.

More than 750 readings expected by end of 2006

Publisher 1

Publisher 2

Publisher N

GDL Editorial

Committee

Individual User

University Course Pack

Corporate SubscriptionBank

Research Institution

• Powerful search capability• Informative abstracts• Convenient, immediate

download of pdf file(s)• Featured reading clusters

Publisher 1

Publisher 2

Publisher N

GDL Editorial

Committee

Individual User

University Course Pack

Corporate SubscriptionBank

Research Institution

• Powerful search capability• Informative abstracts• Convenient, immediate

download of pdf file(s)• Featured reading clusters

Digital Library Editorial Committee

Mr. Richard Apostolik, JD, MBA GARP President & CEO Dr. John Birge Univ. of Chicago Dr. Kobi Boudoukh Caesarea Center, IDC Dr. Carl Chiarella Univ. of Technology, Sydney Dr. Rudi De Koker Citigroup Dr. Dawie de Jongh North West Univ., South Africa Dr. Chris Donohue GARP MD, Digital Library Dr. Xavier Freixas Universitat Pompeu Fabra Dr. Michael Gordy US Federal Reserve Board Dr. Brett Humphreys Risk Capital Management Dr. Lars Jaeger Partners Group Dr. Timothy Krehbiel Oklahoma State Univ. Mr. William Martin Bank of America Dr. Fausto Membrillo-Hernandez IPAB Dr. Wilfried Paus Deutsche Bank Dr. Todd Petzel Azimuth Alternative Asets Dr. Enrique Schroth University of Lausanne Dr. Ken Singleton Stanford University Dr. René Stulz GARP Board, Ohio State Univ. Dr. Donald van Deventer Kamakura Corp. Dr. David Webb London School of Economics Dr. Michael Wong City Univ. of Hong Kong Dr. Sam Wong Chinese Univ. of Hong Kong

GARP Digital Library