BSOCS 5
Financial risk management
BSOCS 5.1
Introduction
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BSOCS 5.1.1
See Notes
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BSOCS 5.1.2
See Notes
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BSOCS 5.1.3
See Notes
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BSOCS 5.1.4
See Notes
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BSOCS 5.2
General
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Systems for controlling and managing financial risks
BSOCS 5.2.1
See Notes
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Systems for controlling index-related risks
BSOCS 5.2.2
See Notes
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Credit limits for counterparties
BSOCS 5.2.3
See Notes
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Policy statement on financial risk management
BSOCS 5.2.4
See Notes
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BSOCS 5.2.5
See Notes
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Policy statements on strategic framework for treasury operations
BSOCS 5.2.6
See Notes
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BSOCS 5.3
Structural risks
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BSOCS 5.3.1
See Notes
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BSOCS 5.4
Operational risks
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BSOCS 5.4.1
See Notes
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Key risk categories
BSOCS 5.4.2
See Notes
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BSOCS 5.4.3
See Notes
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IT security
BSOCS 5.4.4
See Notes
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BSOCS 5.5
Risk management systems
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BSOCS 5.5.1
See Notes
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BSOCS 5.5.2
See Notes
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Control limits
BSOCS 5.5.3
See Notes
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BSOCS 5.5.4
See Notes
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BSOCS 5.5.5
See Notes
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BSOCS 5.5.6
See Notes
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Stress testing
BSOCS 5.5.7
See Notes
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Board information reporting
BSOCS 5.5.8
See Notes
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BSOCS 5.6
Counterparty risk
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BSOCS 5.6.1
See Notes
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BSOCS 5.6.2
See Notes
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BSOCS 5.6.3
See Notes
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BSOCS 5.6.4
See Notes
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BSOCS 5.6.5
See Notes
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BSOCS 5.6.6
See Notes
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Large shareholdings and deposits
BSOCS 5.6.7
See Notes
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BSOCS 5.6.8
See Notes
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Committed facilities
BSOCS 5.6.9
See Notes
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BSOCS 5.6.10
See Notes
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BSOCS 5.7
Independent review and controls
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Internal audit
BSOCS 5.7.1
See Notes
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BSOCS 5.7.2
See Notes
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BSOCS 5.7.3
See Notes
FINANCIAL RISK MANAGEMENT
ADMINISTERED APPROACH | |
RISK MANAGEMENT | CEO (+FD/FM) & Board Dealing / settlement segregation (4 eyes) |
RISK ANALYSIS | None (but MTM fixed rate liquid assets at least monthly) |
FIXED RATE LENDING/FUNDING | Commercial assets: Minimum 95% on administered rates Liabilities: Minimum 95% SDL on administered rates No fixed rate lending > 1 year |
COUNTERPARTY LIMITS | Single name/connected group limits UK Counterparties only Instrument type and maturity limits |
HEDGING INSTRUMENTS | None |
TREASURY SYSTEMS/CONTROLS | Management accounting system Internal Audit |
MATCHED APPROACH | |
RISK MANAGEMENT | CEO + FD (or FM) & Board Dealing / settlement segregation (4 eyes) |
RISK ANALYSIS | Matching Report + (min mthly) Gap Analysis Minimal gap/NPV limits (to cover residuals, prepayment and pipeline only) No structural hedging (incl reserves) No interest rate view Basis risk report |
FIXED RATE LENDING/FUNDING | Commercial assets: A minimum of 65% either on administered rates or due to revert to administered rates in the next 12 months, and of that a minimum 50% already on administered rates. Liabilities: Minimum 65% SDL on administered rates Fixed rate lending/funding max 5 yrs to reprice date (subject to limits). Max stock fixed rate (> 1 yr) 20% commercial assets + 20% SDL Max fixed rate lending/funding 25% loans advanced/retail funding p.a. |
COUNTERPARTY LIMITS | Single name/connected group limits Country limits Instrument type and maturity limits |
HEDGING INSTRUMENTS | Match funding Vanilla interest rate swaps Vanilla interest rate caps/collars/floors (purchase only) FTSE swaps (receive only) |
TREASURY SYSTEMS/CONTROLS | Management accounting system Simple treasury matching system Internal Audit |
EXTENDED APPROACH | |
RISK MANAGEMENT | (CEO)/FD + Treasurer ALCO Front Office + Back Office |
RISK ANALYSIS | Monthly (min.) static gap (+ static simulation modelling) Gap limits Sensitivity limits (NPV & NII) Structural hedging Reserves hedging (strategic) Interest rate view No FX mismatch Basis risk modelling |
FIXED RATE LENDING/FUNDING | Commercial assets: A minimum of 50% either on administered rates or due to revert to administered rates in the next 12 months, and of that a minimum 30% already on administered rates. Liabilities: Minimum 45% SDL on administered rates |
COUNTERPARTY LIMITS | Single name/connected group limits Country limits Sector limits Instrument type limits Currency limits |
HEDGING INSTRUMENTS | Match funding Vanilla interest rate swaps(purchase only) Vanilla interest rate caps/collars /floors (purchase only) Swaptions (purchase only) FRAs / Futures (purchase only) FTSE swaps (receive only) FX swaps/forward contracts (purchase only) FX options (purchase only) |
TREASURY SYSTEMS/CONTROLS | Treasury IT system capable of modelling optionality in static balance sheet. Specialist IT and Treasury Internal Audit |
COMPREHENSIVE APPROACH | |
RISK MANAGEMENT | FD + Treasurer (+Risk Director) ALCO + Daily Treasury Committee Front + Middle + Back Office |
RISK ANALYSIS | Very frequent dynamic balance sheet modelling (future flows) Multiple scenario & yield curve simulation modelling with sensitivity limits (NPV & NII) Basis risk modelling Internal transfer pricing systems Structural hedging Reserves hedging (strategic) Interest view FX mismatch < 2% own funds |
FIXED RATE LENDING/FUNDING | Commercial assets: Minimum 30% on administered rates Liabilities: Minimum 30% SDL on administered rates |
COUNTERPARTY LIMITS | Comprehensive limit structure |
HEDGING INSTRUMENTS | Match funding Complex interest rate swaps Complex interest rate caps/collars/floors (purchase only) Swaptions (purchase only) HPI derivatives (purchase only) Credit derivatives (purchase only) FRAs/Futures (purchase only) FTSE swaps (receive only) FX swaps/forward contracts (purchase only) FX options (purchase only) |
TREASURY SYSTEMS/CONTROLS | Treasury IT system capable of projecting forward balance sheet and simulating different interest rate environments, plus measuring embedded optionality, basis risk etc. Specialist IT and Treasury Audit |
TRADING APPROACH | |
RISK MANAGEMENT | FD + Treasurer (+Risk Director) ALCO + Daily Treasury Ctee Front + Middle + Back Office Banking + Trading books |
RISK ANALYSIS | Banking book: daily (min) duration / simulation analysis. Multiple yield curves and interest rate basis. Structural & reserve hedging Interest rate view. Trading book: Valuation at risk and equivalent measures. Daily P&L (MTM). Product, currency, counterparty limits. Dealing position limits etc. |
FIXED RATE LENDING/FUNDING | No limits |
COUNTERPARTY LIMITS | Comprehensive limit structure, including cross banking and trading book limits |
HEDGING INSTRUMENTS | Any available (subject to the 1986 Act s9A restrictions on use) |
TREASURY SYSTEMS/CONTROLS | Treasury IT system capable of projecting forward balance sheet and simulating different interest rate environments, plus measuring embedded optionality, basis risk etc. Trading book systems Specialist IT and Treasury Audit |
In this table: ALCO = Assets and Liabilities Committee HPIs = house price indices MTM = mark to market NII = net interest income NPV = net present value |
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