Banca Commerciale Italiana gets the go ahead on Internal Market Risk Model
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Banca Commerciale Italiana (BCI) has received approval from the Bank of Italy for the use of internal market risk models using a variety of Value-at-Risk (VaR) methods, including parametric methods and Monte Carlo simulations for non-linear portfolios. The models are built with Algo Suite™ at their core and provide actionable risk information to many business areas of the bank. This is the first time that an Italian bank has had an internal model validated for use by the central bank. Due to the recent merger of BCI with Banca Intesa, the approved model will also be extended to estimate regulatory and economic risk capital for the combined operations of the new IntesaBci bank.

"The bank's success in achieving regulatory approval is the result of an ongoing co-operative effort between BCI and Algorithmics, which spanned teams in North American and Europe," commented Prof. Vittorio Conti, General Manager, IntesaBci Risk Management Group. "Today Algorithmics is at the core of risk management at IntesaBci, providing strategic risk insights to senior management."

Mauro Maccarinelli, Head, Risk Management, Capital Markets at IntesaBci, also had a comment to make: "We believe that the standard regulatory models for market risk do not correctly reflect the actual economic risk capital needs of sophisticated banks such as IntesaBci and result in onerous capital requirements. Using Algo Market, we have developed an internal model that produces far more accurate risk reports and delivers tremendous capital savings."

Paolo Sironi, Senior Risk Manager at IntesaBci, who was in charge of the task force responsible for the creation of the internal market risk model, added: "It's important to have a complete view of the bank's risk and financial operations and we realized that Algo Market, with its global instrument coverage, could be easily extended to handle the diverse requirements of our global organization. Additionally, we believe that the Mark-to-Future™ methodology that lies at the heart of Algorithmics' products is a truly powerful blueprint for knowing one's risk across the market, credit and operational risk areas consistently. The models approved cover market and equity-specific risk, and will cover credit risk when the use of internal models for calculating spread and event risk are approved by the Bank of Italy, expected within a year."

The bank is also well on its way to being able to model all of its credit derivatives' activity, which is important given IntesaBci's status as a globally-recognized player in the credit derivatives arena. Current internal procedures help the bank know its exposures for a large segment of the firm's credit derivatives portfolio in VaR terms. "Credit derivatives are also of major importance to us, and we look forward to working with Algorithmics in extending models for this key area in to a Portfolio Credit Risk Engine (PCRE) framework, furthering the relationship with this firm that we began in 1996," added Maccarinelli.

"We applaud BCI for their initiative in implementing Algo Market as a comprehensive internal model for market risk that puts the bank at the forefront of best practice in risk management. Leveraging our Mark-to-Future framework, the bank is well positioned to meet the emerging Basle II requirements," said Michael Zerbs, VP, Research and Product Marketing at Algorithmics.

On May 1st, 2001, Banca Intesa and Banca Commerciale Italiana (BCI) merged to become IntesaBci, Italy's largest bank.

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