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The Benefits of Better Curve-building and Daily Risk Reporting
By Rob Garfield | May 1, 2018

Today there are more reporting, business and operational demands put upon financial institutions than ever before. Often, firms find it challenging to juggle all of these demands, while at the same time keeping costs down and revenues up.

This is just the situation one of our clients, a Latin American government-owned bank, found themselves in recently. At the time, the firm approached FINCAD for assistance, their goals were threefold. 

  • First, they wanted to improve efficiency and accuracy by automating more processes surrounding the input and output of their trade and market data. 
  • Second, they wanted to increase valuation accuracy and perform profit and loss (P&L) attribution, in order to help them better understand daily fluctuations in the value of their portfolio. 
  • Third, the bank needed to calculate credit valuation adjustments (CVA), in order to meet regulatory requirements and for their own business reporting requirements. 

To give some background, this client is a multilateral government-owned bank with customers comprised mainly of corporations that are active in foreign commerce. The bank’s treasury division manages a multi-currency portfolio of interest rate swaps, cross currency swaps and FX Forwards (including USD, EUR, GBP, CHF, JPY, CAD, MXN, BRL, CNH, COP, PEN and CLP). These instruments are part of the treasury operation for hedging the bank’s exposures. 

I must mention that this Latin American bank had been a client of FINCAD for nearly a decade prior to their newest challenges. Since they were a satisfied client throughout that span, their natural inclination was to turn to us again for their additional risk and valuation needs. 

Ultimately, the bank’s key decision-makers soon chose to expand their relationship with FINCAD by implementing F3, an advanced enterprise solution for modeling, pricing, valuation, and risk management of multi-asset, multi-currency derivative and fixed income portfolios. 

F3 was chosen for its:

  • powerful curve building, including the ability to implement OIS curves for a long list of currencies,
  • ability to produce accurate P&L Attribution and CVA results,
  • and functionality for making workflow more manageable and efficient for the Market Risk group and all other areas in the bank consuming derivatives results.

The bank also elected to use FINCAD Professional Services to assist with both implementation and ongoing technical support of their FINCAD solution. 

“The decision to utilize FINCAD Professional Services was a strategic one. Our business model is such that we do not keep quants on staff. The FINCAD team has been able to fill this gap, giving us ongoing access to expert quant resources that help us implement and run all our derivatives risk calculations beautifully.” 

- Head of Market Risk, Latin American Multilateral Bank 

The Results

The Market Risk, Operations, and Accounting departments are now benefitting from a drastic reduction in manual processes that were once necessary to their daily workflow. As a result, more time is available to spend on strategic work, and operational risk related to human and spreadsheet error is significantly reduced. 

Since using FINCAD F3, the bank has also been able to automate and dramatically speed up valuation and risk calculations, producing the complete set of reports in just 10 minutes. 

Prior to FINCAD F3, valuation and risk exposure reports were only generated on an end of month basis. However, now the bank has access to these key risk calculations intraday, and reports them on a daily basis. 

“Having the ability to move our risk reporting from a once monthly to a daily function has made a world of difference. Producing results more frequently means there is less risk involved and we are operating more efficiently.”

-Head of Market Risk, Latin American Multilateral Bank 

Additionally, richer risk calculations such as scenario analysis, CVA, and P&L attribution now enable the bank to maintain greater control over its business.

Want to learn more about this bank’s experience with FINCAD? Download the just-released case study: Latin American Bank Adopts FINCAD for Curves, P&L, Attribution, Risk Reporting and CVA