Risk transformation
Risk Transformation ( english risk transformation ) is on the financial markets of the balancing of different risk willingness of market participants through financial intermediaries . Further functions are lot size transformation and term transformation .
General
Credit institutions and insurance companies in particular are faced with high risks . On the one hand, they relieve their customers of certain risks, on the other hand they have to take on new risks. Bank and insurance customers have in common that they do not want to bear certain risks (bank customers want the bank as the debtor with their savings deposit and not their borrower , insurance customers do not want to bear any damage risk ). Both sectors take on these risks (by investing money or by paying an insurance premium ). You then take on new risks ( credit risk or damage risk) and must in turn protect them in a suitable form. For the individual customer, banking services such as financial investments or insurance services such as assumption of damage represent a transformation service over time.
Differences in risk
While the main risk for credit institutions is that their borrowers do not provide their debt service ( interest and repayments ), or do not do so in full or on time, the underwriting risk lies in the uncertainty that the sum of the benefits for damaging events in the event of an insured event will equal the sum of the actuarial reserves provided and premium income exceeds. Because of these differences in risk taking, the banking and insurance sectors need to be examined separately.
species
There is horizontal and vertical risk transformation in both banks and insurance companies .
Banks
A distinction is made between horizontal and vertical risk transformation at credit institutions.
- The horizontal risk transformation enables a balance between security-oriented investors and borrowers, for whom the banks assume a default risk. The credit risk of an investor through deposit protection is much lower than the credit risk that a bank takes when lending.
- In the vertical risk transformation it comes to the credit risk through credit securities , credit default swaps or other similar credit risk mitigation techniques to minimize ( risk reduction ).
The usual risk transformation for banks is the horizontal one , whereby investors in the EU are relieved of creditor risk through deposit insurance , while banks bear a credit risk on their borrowers.
Insurance
There is also this distinction with insurance companies, only with a different content:
- The horizontal risk transformation consists in the fact that the personal risks of the policyholders are transferred to the insurance company and are generally reduced or completely eliminated by it. Furthermore, the risk potential of the insurance business is coordinated with the risks of the capital investment business .
- There are two types of vertical risk transformation:
- The vertical asset-side risk transformation consists in reducing the risks from the investment business,
- the vertical risk transformation on the liability side is characterized by risk compensation in the insurance collective ( reinsurance ) and in time.
All insurance companies carry out a vertical passive-side risk transformation in their core business .
Risk balancing
The core risks faced by banks and insurance companies can be reduced or eliminated through risk management measures . Risk is reduced by building a portfolio by distributing it to a large number of borrowers / capital investments whose risk is not positively correlated . Risks can be completely or partially eliminated, in particular through loan collateral , the formation of syndicates , reinsurance , credit default swaps or other derivatives hedging interest rates or exchange rates, or the sale of risks ( loan trading ).
regulation
In order to minimize the core risks of banks and insurance companies, there are detailed supervisory regulations. According to § 18 KWG , banks must at initial lending, and thereafter at regular intervals using appropriate lending documents the creditworthiness of their borrowers check to their probability of default measure.
The Capital Adequacy Ordinance (CRR), which has been in force since January 2014, has strict requirements for credit institutions and investment services companies . Art. 144 et seq. CRR that need rating systems of the Institute for a meaningful assessment of the characteristics of debtors and business provide a meaningful differentiation of risk and accurate and consistent quantitative estimates of risk. According to Art. 170 CRR, credit institutions must maintain different rating systems for companies , credit institutions or states that take into account the risk characteristics of these debtors and contain at least 7 rating levels ( English notches ) for debtors not in default and one for debtors in default.
In the capital investment business, insurance companies are subject to strict investment regulations with their security assets . The tied assets (security assets) are subject to the provisions of Section 124 (1) No. 1 VAG , according to which you must adequately identify, assess and monitor the risks. The issued investment ordinance (AnlV) finally describes the permitted forms of investment ( § 2 AnlV). When investing, the principles of mixture (quantitative restriction of individual types of investment, Section 3 AnlV) and diversification (to different debtors; Section 4 AnlV) must be taken into account.
Individual evidence
- ↑ Freimund Bodendorf / Susanne Robra-Bissanz: E-Finance: Electronic Services in the Financial Economy , 2003, p. 17.
- ^ Mathias Hofmann: Management of refinancing risks in credit institutions , 2009, p. 10.
- ↑ a b c Markus Bogendörfer: Dimension of the risk management of capital market-oriented life insurance companies , 2010, p. 29 (FN 115) and 45.
- ↑ Ekkehard Reimer / Christian Waldhoff: Constitutional requirements for special charges in the banking and insurance sector , 2011, p. 69.
