EXPERIENCED BANK PRACTITIONER, WITH ESTABLISHED CREDENTIALS IN
BANK ASSET-LIABILITY MANAGEMENT AND LIQUIDITY RISK MANAGEMENT
Interview Questions
What would you say are the primary challenges facing the banking
sector right now?
Moorad Choudhry is Treasurer, Corporate
Banking Division at The Royal Bank of Scotland.
Prior to this he was Head of Treasury at Europe
Arab Bank, Head of Treasury at KBC Financial
Products and Vice-President, Structured Finance
at JPMorgan Chase Bank. He began his career at
the London Stock Exchange in 1989.
He is Visiting Professor at the Department of
Mathematical Sciences, Brunel University, and
Visiting Teaching Fellow at the Department of
Management, Birkbeck, University of London. He
is also Visiting Professor at the Department of
Economics, London Metropolitan University and
Chair of the University’s Centre for EMEA
Banking, Finance and Economics.
The main challenge is that there are so many challenges! The ultimate
impact of all of them is lower returns, which is something shareholders and
boards will needs to accept. The challenges arise in need for more capital,
for longer-term hence more expensive funding, for greater cost savings and
more fit-for-purpose IT and data management systems. The competitive
pressures are enormous, and some banks that find they no longer have a
value-added proposition in certain sectors or products will have to withdraw
from them, resulting in job losses. In the most extreme cases, whole
business models will need to be re-aligned, and this takes time. In the
meantime all this drives net P&L down.
What is the strategy proposition for banks going forward?
It has to be based on two things. Or rather, two things plus a mindset that
focuses on risk. First, focus less on Return on Equity and more on genuine
value-added, or at the least risk-adjusted ROE. No more loss leaders, no
more asset origination that is little more than a funding curve play rather
than genuine SVA creation. Second, customer focus. The customer is king
and banks must focus in the customer value added. Treat every customer
as if they are your only customer. And third, know your risk. No more
business activity in areas where the bank does not possess any actual
expertise (or at least, expertise that gives it a competitive advantage). Know
what risks you are originating, and ensure they are within your tolerance to
withstand.
Moorad is a Fellow of the Chartered Institute for
Securities & Investment, a Fellow of the Global
Association of Risk Professionals and a Fellow of
the Institute of Sales and Marketing Management.
He is Managing Editor of the International
Journal of Monetary Economics and Finance, and
a member of the Editorial Boards of Qualitative
Research in Financial Markets, Securities and
Investment Review, the Journal of Structured
Finance and American Securitization. His
publications include Bank Asset and Liability
Management and The Principles of Banking.
This may sound obvious, but one would be surprised how often it is
neglected.
Recent Articles by Moorad Choudhry:
No. In a sense they merely enshrine in law principles that would have been
commonplace in banking practice in the 1860s or 1960s, but had been
forgotten about by 2008. It is sound business practice for banks to hold an
adequate stock of genuinely liquid assets, as cover in the event of a funding
crisis, and to fund their balance sheet with a sufficiently high share of longdated liabilities.
•Jessica Ennis—The Perfect Role Model for Policymakers
and Central Bankers Everywhere
•Politicians’ Adventures in Wonderland: Back to the Gold
Standard?
•The Very Basis of Finance Turned on Its Head
•The Olympic Effect: Good for the Economy
•Why Another Rate Cut by the Bank of England Won't Help
•The EU and Public Opinion: No Euro Zone Break-Up
•Is the UK Really in Recession?
This is also a turning back of the clock, to a time when the heads of the
business were as concerned with risk as the head of risk was. The cultural
shift is a move away from one where P&L is the be-all and end-all of
everything for the business line heads.
Is the new liquidity regime imposed by Basel III too onerous?
Given all the instability in the global economic environment, what are
your suggestions for investors worried about where to park assets?
Given the uncertainties with regard to Euro zone, and continuing lackluster
growth and job creation in USA, one has to err on caution. For me the top
areas to consider are AAA index-linked sovereign bonds, gold, and long
volatility via the VIX contract. And keep at least 25% of your portfolio in
cash!
It depends how you are looking at it. From the banking market view, of
course it can be fixed it just needs time and capital. From the global
economy perspective, we do need to tackle the current imbalances between
an importing West and an exporting, high savings ratio East. An alternative
to the US dollar as a reserve currency would also help greatly. These
issues are much harder to fix.
•Bored of the Euro Zone
Tel +65 6643 8099
skbsharoms@wiley.com
Simply this: that risk management can no longer be the purview of the Chief
Risk Officer and his/her department. Risk management is the responsibility
of everyone in a bank, and this is a cultural shift that must be driven from
the top down. The Head of Corporate Banking is as much responsible for
risk management as the CRO.
Can we fix the financial system or is it broke irreparably and in need
of major structural reform?
•The Price of Sovereign Risk
Contact:
Sharifah Sharomsah
Publicist
What is the key risk management asks in banking?
1 Fusionopolis Walk, #07-01
Solaris South Tower
Singapore 138628
www.wiley.com
Contact: Sharifah Sharomsah, Publicist - skbsharoms@wiley.com, (65) 6643 8099
The Principles of Banking
by Moorad Choudhry, John Cummins (Foreword by),
Ian Plenderleith (Foreword by)
April 2012 / Hardcover / 886 pages
An essential book for the international
banking community as it seeks to reestablish its credibility and put its house
in order
ISBN: 978-0-470-82521-1
List price: US$ 90.00
The Principles of Banking
An essential guide for bankers and students of finance
everywhere, The Principles of Banking reiterates that the
primary requirement of banking—sound capital and liquidity
risk management—had been forgotten in the years prior to
the financial crash. Serving as a policy guide for market
practitioners and regulators at all levels, the book explains the
keys to success that bankers need to follow during good
times in order to be prepared for the bad, providing in-depth
guidance and technical analysis of exactly what constitutes
good banking practice.
Accessible to professionals and students alike, The Principles
of Banking covers issues of practical importance to bank
practitioners, including asset-liability management, liquidity
risk, internal transfer pricing, capital management, stress
testing, and more. With an emphasis on viewing business
cycles as patterns of stable and stressful market behavior,
and rich with worked examples illustrating the key principles
of bank asset-liability management, the book is an essential
policy guide for today and tomorrow. It also offers readers
access to an accompanying website holding policy templates
and teaching aids.
"Asset and liability management (ALM) is at the heart of any
bank. Among many of its functions, keeping the bank liquid and
fixing the ‘‘value’’ of money (for the bank) are key to a bank’s
survival and success. Moorad Choudhry has a wealth of
experience in this area. ‘The Principles of Banking’ is an
invaluable practical guide on how banks can lift their conduct to
meet the challenges of the post-crash era."
Abhijit Patharkar, Senior Business Manager, Asset and
Liability Management, Standard Chartered Bank,
Singapore
"Moorad Choudhry’s ‘The Principles of Banking’ opens up a
portal into the world of sophisticated, dynamic, capital marketsbased commercial banking. He gives us the big picture, the
precise details and a framework for analyzing the enormous
risks facing these firms. The book is an invaluable resource."
Jean Helwege, J. Henry Fellers Professor of Business
Administration, Department of Finance, University of
South Carolina
"This book is a ‘‘must read’’ for all senior bankers. There is no
writer better than Moorad Choudhry for communicating the
vital principles of liquidity, capital and asset-liability
management and bank corporate governance."
Professor Carol Alexander, Chair of Financial Risk
Management, ICMA Centre, University of Reading Chair
of the Board, Professional Risk Manager’s International
Association
Available at all major bookstores,
www.amazon.com, Amazon.cn, Amazon,jp, Kinokuniya.com,
MPHOnline.com and Wiley.com
i.
Illustrates how unsound banking practices that were
evident in previous bank crashes were repeated during
the creation of the 2007-2008 financial market crisis
ii.
Provides a template that can be used to create a sound
liquidity and asset-liability management framework at
any bank
iii.
An essential resource for the international banking
community as it seeks to re-establish its credibility, as
well as for students of finance
iv.
Explains the original principles of banking, including
sound lending policy and liquidity management, and
why these need to be restated in order to avoid another
bank crisis at the time of the next economic recession
v.
Covers topics of particular importance to students and
academia, many of which are marginally—if ever—
addressed in current text books on finance
vi.
Offers readers access to a companion website featuring
invaluable learning and teaching aids
Written by a banking practitioner with extensive professional
and teaching experience in the field, The Principles of
Banking explains exactly how to get back to basics in risk
management in the banking community, essential if we are to
maintain a sustainable banking industry.