Algo to offer Basel II-compliant credit risk solution

Algorithmics, the Toronto-based risk management technology firm, says it is working with its clients to include a credit solution in its suite of products which meets the specific data architecture, data modelling and technology requirements required under the evolving Basel II capital Accord due to be implemented by 2005.

The Algo Credit - Bank for International Settlements (BIS) II Module, is scheduled for delivery in the first half of 2002. It will collect, map and store the inputs required to drive Basel II credit capital measures, and provide calculations for the three-pillar approach of the Basel II regulatory credit capital approaches - standardised, foundation and advanced Internal Rating Based.

The firm says it will be the first full solution tosupport the standard, foundation and advanced regulatory approaches, as well as economic capital approaches, allowing institutions to compare their risk andreward across business lines.

“Financial institutions are interpreting BIS II in a holistic manner, going beyond the basics of regulatory capital compliance to seize the opportunity to implement 'best practice' risk management processes such as global limits management, collateral and credit portfolio management, within an integrated risk architecture that accommodates change,” said Michael Zerbs, vice-president of research and product marketing for Algorithmics.

The solution includes a straightforward extension of the existing Algo Suite enterprise risk management data model that supports trading and banking book transactions, credit mitigants (including collateral)and credit derivatives, as well as counterparty structures and associated probabilities of default.

Algorithmics says the BIS II Module can also be used in conjunction with its collateral management solution, Algo Collateral (Sentry), for meeting the minimum operational requirements for collateral outlined in Basel II. Theseinclude system requirements for tracking the status and location of collateral, and managing concentration and roll-off risks.

“A key advantage of all of our solutions is that the BIS-II engine, as well as other, existing analytical components in Algo Suite, sit on top of a common data infrastructure. For existing Algo Suite clients, this means much of the data integration effort to support market, credit, limits and asset and liability management (ALM) projects now underway can be easily leveraged in Basel II-compliance projects. Similarly, new clients choosing Algo Credit - BIS II Module will find that the data integration work undertaken to implement Algo Suite can be leveraged for all manner of market, aggregated credit exposure management, limit management and ALM projects,” added Zerbs.