New data-warehouse software helps banks calculate the risk associated with financial-product portfolios.
IBM on Friday unveiled an integrated data-warehousing and risk-management product to help banks comply with Basel II, a risk-management regulation approved last year by the Bank for International Settlements, the governing body of worldwide bank regulators.
The product, IBM Risk and Compliance-Basel II Information Management Offering, combines IBM's DB2 data-warehouse software and data-management consulting expertise with Fair Isaac Corp.'s Triad credit-risk scoring system. The product enables banks to comply with Basel II guidelines on calculating probability of losses from default, a key metric for Basel II compliance.
Triad calculates risk scores for retail-product portfolios such as credit-card accounts, based on patterns of customer behavior and other variables. The risk scores form the basis for calculating loss probability for each portfolio.
The Triad system rounds out IBM's Basel II compliance product line by enabling banks to build a central data warehouse populated with data for all categories of risk, at both the retail and commercial levels, says Financial Insights analyst Deborah Williams.
Typically, banks maintain individual risk systems for credit cards, auto lending, home-equity loans, and other product lines. Those systems are essentially silos that aren't linked to each other or to risk systems for commercial products. "The challenge is combining retail and commercial risk systems at the enterprise level," Williams says.
IBM is pitching the product mainly at large U.S. banks and U.S. subsidiaries of foreign banks, which will be required to comply with Basel II by 2008. But smaller banks may want to comply as well, enticed by the prospect of lowering the amount of capital they're required to hold in reserve by adopting more rigid risk-management methodologies, says Janice Horan, director of product marketing at Fair Isaac.
The product can also be used to solve problems beyond compliance, such as creating analytics for customer data mining and other business applications, Horan says.
IBM began installing the system in several banks last year, says Richard Wozniak, director of business-intelligence marketing at IBM. He declined to identify the banks.
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