Risk Management for Central Banks and Other Public Investors

Domestic and foreign financial assets of all central banks and public wealth funds world wide are estimated to have reached more than 12 trillion US dollars in 2007. How do these institutions manage such unprecedented growth in their financial assets and how have they responded to the ‘revolution’ of risk management techniques during the last fifteen years? This book surveys the fundamental issues and techniques associated with risk management and shows how central banks and other public investors can create better risk management systems. Each chapter looks at a specific area of risk management, first presenting general problems and then showing how these materialize in the special case of public institutions. Written by a team of risk management experts from the European Central Bank, this much-needed survey is an ideal resource for those concerned with the increasingly important task of managing risk in central banks and other financial institutions.

Contents

Foreword; Introduction; Part I. Investment Operations of Central Banks and Other Public Investors: 1. Central banks and other public institutions as financial investors U. Binseil; 2. Strategic asset allocation for central banks and public investors K. Nyholm and M. Koivu; 3. Credit risk modeling for public institutions' bond portfolios H. van der Hoorn; 4. Risk control framework, limits, reporting, compliance monitoring, and other risk control functions A. Manzanares and H. Schwartzlose; 5. Performance measurement and attribution H. Bourquin, S. Hesselberg and R. Marton; Part II. Collaterised Lending Operations: 6. Credit risk taking in collaterised lending operations U. Binseil and F. Papadia; 7. The collateral and credit risk mitigation frameworks of central banks E. Tabakis and B. Weller; 8. Risk mitigation measures and credit risk assessment in central bank policy operations F. González and P. Molitor; 9. Risk measures for a repo portfolio E. Heinle and M. Koivu; Part III. Organisational Issues and Operational Risk Management: 10. Organisational issues relating to the risk management function of public investors E. Tabakis; 11. Operational risk management in central banks J.-C. Sevet; Index.

Contributors

U. Bindseil, K. Nyholm, M. Koivu, H. van der Hoorn, A. Manzanares, H. Schwartzlose, H. Bourquin, S. Hesselberg, R. Marton, F. Papadia, E. Tabakis, B. Weller, F. González, P. Molitor, E. Heinle, J.-C. Sevet