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The Merger
The Merger
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Ita-Unibanco
The Merger
2010
Migration: the big change will consist of the merger of the network comprising one thousand branches of Unibanco into the Ita platform.
9 Platform
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Ita-Unibanco
9 103,835 Employees
9 3,933 Branches
ACONTROL| CONFIDENCIAL
Ita-Unibanco
Overview
9 Itaucard, Unicard and Hipercard offer a wide range of products to 23.8 million customers
9 In capital markets, markets Ita BBA is the bank with the highest number of transactions, transactions with a market share of 75%
ACONTROL| CONFIDENCIAL
Ita-Unibanco
Vision
Beingtheleadingbankinsustainableperformanceandclientsatisfaction
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Ita-Unibanco
Organizational Structure
RiskManagementResponsibility:decentralizedmanagementandcentralizedcontrol
CENTRALIZED CONTROL
DECENTRALIZED MANAGEMENT
AROE
ACRF
Technology
WMS
IBBA
Operational Risk Management Internal Controls Efficiency y Ombudsman & Quality Corporate Security Loss & Risk Data
Consumer Credit
Investment Bank
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Basel II Project
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Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Processes
Risk DB
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
CultureAssimilation
Strategy
Methodology
Management Tools
Processes
Risk DB
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
TimeLineDefinition Definingtheareasinvolved inthemanagementandtheir responsibilities OrganizetheCommittees Structure OpRisk concepts Developmentofoperational riskmanagementpolicies
Methodology
Management Tools
Processes
Risk DB
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Elaborating measurementmodels SelfAssessment methodologies Developing methodologiesof CapitalCalculation
Management Tools
Processes
Risk DB
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Processes
Risk DB
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Mappingmanagement toolnecessitiesand responsibilities Currenttool functionalityassessment andimprovedtool design Elaboratingoperational riskmanagement policies
Identifying the process of Processes the bank D Defining fi i a methodology th d l t to indentify and categorize risks (risk dictionary, decision trees) Undertaking a mapping of the risks from the processes
Defining criteria to Risk DB categorize risk and events M Management t and d storage t of f risks, indicators and control data
Data model
Storage and processing of d t data Data quality Account Reconciliation Aligning with management vision
Internal LDB
ORX association
External LDB
Identification and Systems documentation of/IT systems that support pp OR management in the business areas Identification and documentation of systems that support the loss and risk DB Identification of the interfaces Assuring systems integrity and reliability
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Processes
Identifyingthebank processes Undertakingamapping oftherisksfromthe processes
Risk DB
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Processes
Risk DB
Definingcriteriato categorizeriskand events Managingandstoring datarelatedtorisk eventsandindicators BEICFsData
Internal LDB
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Processes
Risk DB
Internal LDB
Datamodel Storageandprocessing ofdata Dataquality AccountReconciliation Aligningwith managementvision
External LDB
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
C Coaching hi St t Strategy M th d l Methodology Documentation and Reporting M Management t Tools T l
Processes
Risk DB
Internal LDB
External LDB
Consortiumassociation Externaldataprocess
Systems /IT
ACONTROL| CONFIDENCIAL
Basel II Project
Work Fronts
Coaching
Strategy
Methodology
Management Tools
Processes
Risk DB
Internal LDB
External LDB
Systems /IT
BusinessAreasManagement: mappingandcataloguing supportivesystems RiskandLossDB:mappingand cataloguingsupportivesystems Identifyingtheinterfaces Assuringsystemsintegrityand reliability
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The Merger
Quantitative Methods
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Quantitative Methods
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Quantitative Methods
Inputs
Losseventsperrisktype
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Quantitative Methods
Frequency and Severity Model
Inputs
Losseventsperrisktype
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Quantitative Methods
Frequency and Severity Model
Inputs
Calculating VaR
Losseventsperrisktype
ACONTROL| CONFIDENCIAL
Quantitative Methods
Frequency and Severity Model
Inputs
Calculating VaR
Losseventsperrisktype
Aspectstoconsider:
Widerangeofdistributionsandadjustmenttechniques Mitigationtechniques Possibilityofincorporatingexternaldata
Probability of Loss
BackTesting
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Quantitative Methods
HeavyTails As single g eobservation obse at o may aydramatically d a at ca ychange c a gethe t eestimation est at o
Number of events
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Quantitative Methods
HeavyTails As single g eobservation obse at o may aydramatically d a at ca ychange c a gethe t eestimation est at o
Density
2e-04
1e-0 04
0e+00
0e+00 5000
1e-0 04
2e-04
3e e-04
3e e-04
4e-04
4e-04
10000
15000
20000
Losses Loses
Losses Loses
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Quantitative Methods
ConfidenceInterval:
NumberofObservationsmatter
ConfidenceIntervalfor1000 observations
F re q u e n c y
1 0 0
2 0 0
3 0 0
1000
2000
3000
4000
5000
6000
Loses Losses
F re q u e n c y
ConfidenceIntervalfor10000 observations
1 0 0
2 0 0
3 0 0
1000
2000
3000
4000
5000
6000
Loses Losses
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Quantitative Methods
DataGenerationProcess: IIDassumptiongenerallydoesnotholdforalongperiod
550
Freq quency
De ensity 2000 2001 2002 2003 2004 2005 2006 0.000 0.005
450
50 00
0.010
0.015
450
500 Frequency
550
600
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Alternative Approaches
Alternative Approaches, such as Scenario Based Analysis, and the use of Business Environment and Internal Control Factors are useful tools.
Implementation can potentially be a beleaguered task. However, the long term benefits from capital allocation and risk management will overcome short term difficulties and needed adjustments
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Conclusion
Itau Unibanco faces a challenge to meet Basel II regulatory requirements. However, Basel II Project Work Fronts increase efficiency in its processes, systems and risk management.
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