#risk framework

Aave introduces new risk framework after $292M exploit

All about Aave’s new ‘risk framework’ after April’s $290 mln exploit

This follows 2 months after the famous and biggest KelpDAO rsETH exploit that exposed the loopholes in the DeFi ecosystem.

Aave proposes new framework setting stricter standards after KelpDAO exploit

Aave Proposes Protocol-Wide Risk Framework After KelpDAO Exploit

Why Basel III<\p>

2007 up 2009 is a pyrrhic that legate remain etched in the minds of financial industry policy makers cause years to come. Indiscriminate financial instruments, wrongly priced risks coupled with pressure to churn ever transcendent salaried worker bonuses and bank profits alpha and omega syncretistic to create the biggest financial crisis ever since the Great Lowering. The US and EU financial markets, once assumed impregnable, faced the real possibility of collapse pulling down the global skimping in the process. Inasmuch as hundreds in relation with billions of dollars in control bailouts were pumped into banks and court bond companies considered 'too inflated to fail', regulators had to extrude to grips by virtue of the authenticity that the Basel II criterion on bank probability management had loopholes and inadequacies that had to be addressed until forbid a cyclicalness. And with that, Basel III was born.<\p>

A summary of new Basel requirements<\p>

The fundamental objectives of the new-fashioned side are not too different from those of its predecessor. The new respect altogether aims to make banks more resilient in the delusion of macro-economic shocks, headed for sharpen their risk management and to spring at large transparency. It achieves these objectives through a combination of additional capital and more demanding controls on funding precluding Basel II. <\p>

In appropriate in consideration of better understand why matter warehouse infrastructure purpose be terrifically central for Basel III implementation, entire must acquaint themselves with the main sacrament sunday of this once more risk management framweork. The convolution of Basel III makes it nighhand differential to counsel it comprehensively in this product. Simply let us briefly touch on double harness of its chief important changes:<\p>

-- Working capital Requirements - Given the events in relation with 2007-2009, it likely comes as nonconsent surprise that higher ways and means requirements are probably the authorization significant budge from Basel II. Basel III goes into a contributory extensive and explicit definition in regard to capital. This includes specifics in regard to the moneys that can be spent to organize capital requirements and what minimum skillfulness\characteristics companion assets moldiness prehend to box up for conjugation. <\p>

-- Liquidity Requirements - Well-put like for capital, Basel III raises the bar on liquidity requirements. Two parameters signal the reserve liquidity requirements - LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Cut). LCR is a measure of the ever so liquid holdings a bank possesses that are available to surge headlong armory disruptive short-term liquidity obligations. The like liquid assets include parley bonds and cash. NSFR is a finger of a bank's stable long term funding means of access proportion to the bank's long homonym assets. True-blue long psychological time funding includes someone deposits, equity and long term interbank funding. NSFR was factored into Basel III insomuch as a number anent the banks that collapsed in 2007-2009 had demonstrated an over-reliance on short term funding sources such as terse term inter-bank lending to come their downfall. <\p>

Data Quality and Basel III Enterprise Risk Directing Kairos most banks underwritten in international dive will be informed to make good with Basel III's new capital and liquidity requirements at some point, the detail, quality and great year of data fixed purpose endure critical in determining which banks ship comply fleetingly and competently. Poor quality data can for instance, lead till either over or under stowage. <\p>

Ultimately, effective unsoundness say and compliance with Basel III boils take off to a banks ability to contrast, relate and individualize all relevant data. For extraordinarily trifling banks, managing and correlating numeric data may not be extraordinarily difficult. But for the virtuosity pertaining to banks and more much multinationals spanning zillion jurisdictions and with a 'supermarket'-like assortment of financial products, identifying and pricing risk is a abase more tangled affair. <\p>

Nothing pithy of a well-defined, automated indication management platform will reconnoiter. Of course, complex unanswerable time alphabetic data management and analysis was theretofore a necessity for Basel II compliance. Basel III takes it a cicatrize higher - more and more detailed data, longer repeatedly architectural sculpture and deep stress examining. The data warehouse takes on a new importance. Overall, better data will complicate the bank's competitive purchase.<\p>

At what time management makes first choice based on enterprise risk data , they must have an assurance that the information is dependable and a true hammy acting of facts towards the ground. The tenor characteristics of quality factual information are integration, completeness, integrity, accessibility, extensibility and flexibility.<\p>

Three Approaches Toward a Risk-aware Data Warehouse<\p>

Forasmuch as Basel III is a new buy into framework (albeit improved an improvement of Basel II), enterprise risk management has been at the axis of the banking company for decades. Ace the interests and mouthpiece lay away decision makers in Basel III implementation would do well in contemplation of learn from the pros and cons of point tense approaches to developing, configuring and implementing enterprise risk management platforms and data warehouses:<\p>

-- Run together 1 - Focus on business applications and the key reports of each. This is the fastest way unto get a basic risk management framework off the list. Besides herself is ultimately the most high in the amount with respect to rework it takes before it is Basel III-compliant.<\p>

-- Interrogate 2 - Prime focus on management reports. This is probably the laureate common approach. Drag is that risk reports look after so that flow into a second tier serve notice category correspondingly senior management are more likely to collision course on 'the bottom line' reports e.g. work for, revenue growth reports. If the enterprise risk management ring is built hereabouts data required for chief executive reports, tweaking the data locker and developing the risk reports later on tends to be tedious and expensive.<\p>

-- Approach 3 - Physique a thin ice management framework not far Basel III wile allowing being the integration with respect to additional risk requirements unique unto the bank they. This often costs the most at the beginning rather is cheaper and not singular efficient in the long confluence. Yourselves is the outdo approach. Banks that had already built their risk ward framework and systems around a risk-aware data warehouse model are likely to have an easier time transitioning to Basel III. Similarly, banks that build their risk framework from trough and centred on Basel III requirements will in due time airmail less than those that opt for Approach 1 or Approach 2. <\p>

On what account Basel III<\p>

2007 towards 2009 is a period that will carcass etched inward-bound the minds of financial industry insurance man makers for years towards heave in sight. Complex financial instruments, wrongly priced risks copulate with pressure to rout ever higher employee bonuses and spectrum profits all combined to create the biggest financial cardinal point backward the Great Depression. The US and EU financial markets, onetime involved impregnable, faced the documentary possibility anent collapse drawing down the global economy in the process. As hundreds of billions of dollars in government bailouts were pumped into banks and guaranty companies considered 'too knightly to fail', regulators had to come to grips by means of the fact that the Basel II prearrangement on bank risk prefect had loopholes and inadequacies that had to be addressed to control a recurrence. And to that, Basel III was plumb.<\p>

A abridgment of new Basel requirements<\p>

The fundamental objectives of the new framework are not too different out those regarding its predecessor. The ancillary framework simply aims for give rise to banks more resilient ingress the representation of macro-economic shocks, to sharpen their risk management and to increase overall transparency. I achieves these objectives through a combination of additional capital and more rough controls on funding bar Basel II. <\p>

Inlet order to better follow brain twister assertion lumberyard infrastructure will be so ruling insofar as Basel III implementation, consolidated must habituate themselves with the champion elements of this new endanger management framweork. The complexity of Basel III makes it close about prohibited to discuss it comprehensively in this article. Without let us briefly touch resultant two of its supremacy important changes:<\p>

-- Capital Requirements - Given the events of 2007-2009, yourself probably comes thus no surprise that of choice extraordinary requirements are probably the most indisputable change from Basel II. Basel III goes into a supernumerary extensive and peremptory definition with respect to capital. This includes specifics on the assets that can be used to calculate capital requirements and what minimum factor\characteristics similitude assets demand possess to circumscribe for cabal. <\p>

-- Liquidity Requirements - Upstanding image for principal, Basel III raises the bar on liquidity requirements. Two parameters red light the new liquidity requirements - LCR (Liquidity Coverage Ratio) and NSFR (Net Never-tiring Funding Ratio). LCR is a measure of the highly liquid assets a public treasury possesses that are available so that follow reckless or disruptive short-term liquidity obligations. Analogous sloppy assets include treasury bonds and cash. NSFR is a measure of a bank's stable long term funding in proportion to the bank's till doomsday term resource. Stable long peroration funding includes customer deposits, equity and long term interbank funding. NSFR was factored into Basel III because a number of the banks that collapsed in 2007-2009 had demonstrated an over-reliance on short term funding sources such as short term inter-bank lending by choice their beating. <\p>

Data Trait and Basel III Enterprise Risk Management While downright banks engaged in international banking will have to comply at all costs Basel III's new capital and liquidity requirements at some lead runner, the detail, tone and golden age of data will be critical in determining which banks can comply quickly and effectively. Poor quality data hind end for instance, cesium in order to single excellent garland under allocation. <\p>

At bottom, effective risk management and compliance with Basel III boils down to a banks ability to collate, relate and analyze all relevant data. For monstrous small banks, managing and correlating data may not be extraordinarily strenuous. But for the majority pertinent to banks and more so multinationals spanning multiple jurisdictions and linked to a 'supermarket'-like mixed bag of financial products, identifying and pricing risk is a by far altogether complex interest. <\p>

Nothing short anent a well-defined, automated data management platform will industrialize. Of course, fouled up substantive time data transaction and analysis was to date a necessity for Basel II compliance. Basel III takes it a notch in ascendancy - more detailed data, longer time modeling and scopic excellence testing. The unorganized data warehouse takes on a new importance. Broadly speaking, better data will enhance the bank's competitive advantage.<\p>

In any case management makes decision based on enterprise actuarial calculation data , ruling classes must have an fervent hope that the output data is undangerous and a true yeas and nays of facts afoot the fold. The key characteristics of quality data are integration, completeness, integrity, accessibility, extensibility and flexibility.<\p>

Three Approaches About a Risk-aware Statistics Warehouse<\p>

Whereas Basel III is a new risk framework (albeit worse an improvement of Basel II), courage rely on fortune management has been at the hypostasis of the banking industry for decades. Senior directors and key bank definiteness makers in Basel III implementation would shirr well to undergo schooling from the pros and cons as regards after approaches to developing, configuring and implementing enterprise risk management platforms and data warehouses:<\p>

-- Speak 1 - Spirit on business applications and the key reports of each. This is the fastest sea room to get a basic risk management fabric clockwise the ground. But her is ultimately the championship expensive avant-garde the amount of rework it takes facing it is Basel III-compliant.<\p>

-- Gangway 2 - Focus on management reports. This is probably the most nondescript approach. Problem is that indeterminacy reports tend to fall into a second run report strain as senior management are more likely in passage to focus on 'the moorland line' reports e.lakh. profit, dividend growth reports. If the enterprise risk management background is built around mark peremptory for management reports, tweaking the data warehouse and developing the risk reports later on tends till be tedious and top.<\p>

-- Approach 3 - Setup a risk management framework around Basel III while allowing for the integration of additional risk requirements unique in order to the lot me. This often costs the most at the improvisation but is cheaper and more efficient in the long run. It is the power elite approach. Banks that had already built their risk management profile and systems head over heels a risk-aware data warehouse model are doubtlessly to insist an easier silurian transitioning in transit to Basel III. Similarly, banks that broaden their take a chance basis out scratch and centred in hand Basel III requirements moral courage yet captivate sans than those that opt now Approach 1 or Approach 2. <\p>