IBM Case Study
Zürcher Kantonalbank accelerates risk
assessment with an IBM grid
Overview
■ Challenge
To increase efficiency and avoid
relying on inflated regulatory
credit risk figures, ZKB needed to
run complex financial models at
high speed
■ Solution
IBM helped ZKB implement a grid
architecture based on several
IBM System Cluster 1350™
servers and 45 IBM System x™
336 servers, running Linux®
Zürcher Kantonalbank (ZKB) in
Switzerland provides private, retail and
commercial banking services for both
individuals and corporations. With
around $100 billion of customer assets
under management, a balance sheet
of over $7 billion and more than
4,200 staff in 109 branches in 2005,
ZKB is a growing force in the invest-
ment management market, returning
annual profits of around $600 million.
Companies in Switzerland operate with
a high degree of interdependence, and
it is important for ZKB, which provides
credit for these companies, to under-
stand how the fortunes of one can
affect the others—for example, whether
smaller suppliers would be able to han-
dle the bankruptcy of a larger company.
■ Key Benefits
ZKB knew that it would be possible to
Substantial reduction in economic
use advanced computer modeling algo-
capital needed to offset credit
rithms to gain a clearer view of its finan-
risk, freeing up money for
cial position, reducing the amount of
re-investment; open standards
capital it would need to offset against
software and re-use of existing
potential bad debt and increasing
hardware for low cost of imple-
profitability.
mentation and ownership; return
on investment seen within two
computational runs.
Without such a modeling system, the
bank had to rely on regulatory credit
risk figures, which did not take into
account factors like diversification,
structure of credits, repayments and
amortization, and were consequently
inflated. As credit represents one of the
bank’s main income streams, the need
to find an IT solution capable of running
complex financial models at high speed
was becoming critical for the business.
Opening a path to performance
ZKB considered solutions from
several vendors before deciding to
implement a grid solution designed by
IBM Global Technology Services.
“The pre-sales service from IBM won us
over,” explains Dr Daniel Egloff, Head
of Financial Computing at ZKB.
“The IBM consultant listened to our
issues and offered to perform a proof-
of-concept at the IBM Grid Design
Centre in Montpellier, France. The ability
to determine our exact requirements
before implementation was a crucial
factor in our decision—and it convinced
us that the solution would work.”
The proof-of-concept was vital because
ZKB did not consider any of the com-
mercially available risk applications to
be suited to its needs. The bank’s
ambitious strategy was to design its
own state-of-the-art system based
entirely on open source technology and
running on a GNU/Debian Linux
operating system.
“We wanted to prove that open source
is a possibility for the banking services
industry,” explains Dr Egloff. “And of
course, the choice of Linux and other
open source software kept our licensing
costs at a minimum.”
Banking on the skills of its in-house
team, ZKB developed its own financial
modeling application to calculate credit
risk. The team also built a scheduling
and object distribution system based
on MP, and use the Sun Grid Engine to
provide a front-end queuing system.
“ Without the grid
technology from
IBM… performing
financial modeling
calculations within a
useful timeframe
would simply not be
possible.”
– Dr Egloff, Head of Financial
Computing
The grid consists of several
IBM Cluster 1350 servers with
45 IBM System x model 336 servers
as computational nodes. The extreme
scalability of the grid architecture will
make it simple to add more machines
in future to increase processing
power—in fact, ZKB has already tripled
the number of calculation nodes since
the start of the project.
“The main features of the IBM solution
are scalability, flexibility and perform-
ance,” says Dr Egloff. “We can easily
add nodes to the network and divide
them between production and test
and development clusters to balance
the workload dynamically. And with
the grid architecture, we exploit around
90 percent of the available processing
capacity—as opposed to an estimated
40 percent for alternative solutions.”
“Efficient use of hardware resources is
important because our key requirement
is computing power. Our financial mod-
eling calculations involve up to 10TB of
data, so a single calculation can take
anything from 60 to 100 hours, even
with the new solution. Without the grid
technology from IBM, combined with
their High Performance Computing and
Linux cluster know-how, performing
such calculations within a useful time-
frame would simply not be possible.”
Cutting capital requirements
The grid is simple to maintain and
administer, reducing workload on IT
staff and freeing them to provide sup-
port and development services to the
rest of the company. There are plans to
extend access to the grid so that other
departments within the bank can bene-
fit from its computing power—for exam-
ple, SunGard FRONT ARENA will soon
be deployed on the grid to provide fast
pricing of structured products.
“We would like to extend the grid’s
financial modeling potential too, so that
we can run all kinds of Monte Carlo
simulations,” adds Dr Egloff. “It may
even be possible to use the grid to pro-
vide services to other banks, potentially
increasing revenues.”
The low cost of implementation—
using open source software and
extending the value of existing hard-
ware investments—combined with the
huge improvement in the accuracy of
credit risk figures meant that ZKB saw
a full return on investment after only the
second computational run.
“Because we no longer have to use the
regulatory risk figures—which are
approximately twice as high as our
own—we can dramatically reduce capi-
tal costs, making our credit operation
far more profitable and at the same
time more competitive in a market with
shrinking margins,” concludes Dr Egloff.
“The IBM grid computing solution has
given us the power we need to calcu-
late credit risk accurately, and its flexible
architecture will enable us to embrace
more complex financial models in the
future without increasing costs.”
For more information
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Produced in the United States of America
January 2007
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