Job at time of interview: Risk Manager, Credit Risk Treasury, Erste Group Bank
I am employed at Erste Group Bank, which is one of the biggest banks in Austria and Central and Eastern Europe (CEE). The bank has numerous subsidiaries in CEE, the largest of which are located in the Czech Republic, Romania and Slovakia. The team in which I work controls limits for counterparty exposure by monitoring all transactions with all counterparties for all group subsidiaries and affiliates. My colleague and I are responsible for calculating the potential future exposure of derivative transactions. This is a challenging task, because we need input data from the trading systems and subsequently use it for calculating our models. As a head-office employee, I have to consolidate all the data received from our different subsidiaries in various countries. I personally consider it to be a great advantage to work for an international company with branches concentrated in CEE countries, as this offers a variety of unique and invaluable problem solving experiences. Additionally, the interactive experience gained with my CEE colleagues and young colleagues from the Ukraine, Czech Republic or Romania provides an international flair. Our newly-appointed CRO, Andreas Gottschling -- an expert in risk management who studied at Harvard and worked for Deutsche Bank -- will, in my view, make the work in our risk management division even more interesting.
Skilled risk managers in our division will, in my opinion, encounter very challenging and professionally demanding and interesting times, since risk management is currently one of the most dynamic areas in banking. The FRM Exam provided me with state-of-the-art risk management skills, and was a great addition to my mathematics degree, because I learned the practical applications of my mathematical skills. Risk management is the most sought after area in finance, and the increasing complexity of risk with which banks are constantly confronted will require highly trained risk managers.
I believe that both fields helped me considerably. Risk managers need to be experts in using computers, as financial models are applied to large amounts of data in risk. A good knowledge of software development is a big advantage, as it helps you to understand the limits and pitfalls of computer-assisted models. I recently started a small IT consulting company in which I try to develop cell phone apps and consult with companies on computational finance. In my view, actuarial science and risk management go hand in hand, as they are both based on mathematics, use similar models and profit from each. Models used in actuarial science are also used in financial risk management and vice versa. I believe being a qualified actuary is a big advantage as a risk manager, but I personally find financial models more challenging and intellectually more demanding than pure actuarial models.
In monitoring exposure limits in my department we had to cut limits; even over longer time periods. My colleague and I therefore had to increase the accuracy of our calculations. If you have a big limit, then small errors or oversimplification are not so sensitive -- e.g., if you have a possible exposure of 100 Mio, simplifications will not have as large an effect as for a tight limit of, for example, 1 Mio or less. This forced us to go more into detail and value derivatives more precisely.
LIBOR is a fundamental input for the calculation of derivatives, and the scandal undermined the trust in one of the most frequently used inputs in our calculations. Nevertheless, LIBOR is still a good gauge for the discount rates. As recent events showed us, you cannot even trust U.S. government bonds to be 100% default free.
We use software from a big software provider for analyzing our limit exposure structure and for financial mathematical calculations. As with all standardized software it has its strengths and weaknesses. Since a standard tool is not easily adapted to special needs, we sometimes have to accept work-arounds, which is not the most elegant solution. Goldman can afford to hire a lot of financial engineers and software developers to develop their own applications, whereas as a medium-sized bank we are forced to buy some already working products and customize them to our needs. I personally believe that in-house developments are more exciting and challenging than adapting third-party software, but I enjoy the challenges of my current job.
Ethical behavior is necessary in all professions, especially in banking. People in risk management often have access to privileged information and therefore must be careful. I personally believe that unethical behavior by employees in risk management is more infrequent than in, say, front-office roles, because the incentive to behave unethically (i.e., the bonus culture) is lower and there are fewer conflicts of interest, since risk managers don't actively engage in trading. Awareness of ethics helps, but the use of common sense can avoid a large percentage of conflict situations.
The exam gave me an insight into almost all the relevant areas of risk management. I am now able to understand other issues from other risk management areas. For instance, I am aware of the effects that my work can have with regard to market and/or operational risk.
I wanted to prove to myself that I was capable of passing; I did both parts on the same day. I think that the FRM is the gold standard in risk certifications, because there are no exceptions or ways to bypass the exams. Every FRM has to pass two hard exams which are identical worldwide. Therefore, its value is higher than certifications where you get credits for university courses or other exams. I also believe that GARP puts a lot of effort into writing the exams, to ensure their relevance from a practical and a theoretical side. I can recommend it to everybody in risk management.
Take the exam seriously. It's hard, and you definitely encounter times where you've reached your limit, or are stuck in a chapter. The curriculum is interesting but voluminous, and some points are challenging. But I believe it is manageable and the reward of becoming a Certified FRM is definitely worth the effort. Just start at the right time, as the curriculum cannot be handled in 4 weeks!
I honestly believe that the FRM Exam is the gold standard in the field of risk management, and I am happy to contribute to the development of the questions. It's an honor to be chosen to become an Item writer, and I was proud to have been selected. The FRM Program improves if practitioners participate in the creation of the exam. Actually, I find that participating has helped improve my knowledge of the material on the syllabus. It has also provided an opportunity to meet interesting people who all are experts in the field of risk management, and I've gained some new friendships.
I have been diving for almost 20 years and, having logged more than 300 dives, find that most situations are manageable. The riskiest dives are the ones where you feel out of practice or where something unexpected happens. The most important rule is to always keep calm and remember want you've learned. A dive that you know is going to be challenging concentrates the mind. If I know I will dive deep because I want to see a cave or a sunken ship, I will prepare myself accordingly; but if I face an unexpected problem (maybe an equipment malfunction) then this can be risky. There are similarities with risk management; you have to rely on your skills and be prepared for unexpected events.
The newsletters sent out by GARP are always interesting to read. Plus, I have the chance to network with fellow risk managers.