Profile: Greg Woodbury, senior quantitative analyst, St George Bank
Underlying risk models are at the heart of banks’ efforts to implement the Basel II Accord. Stuart Fagg spoke to Greg Woodbury, PwC Risk Professional of Year, about his work at St George Bank
The Basel II Accord, created to promote greater consistency in the way banks and banking regulators approach risk management across national borders, has been occupying banking risk professionals for years such is its scope. One of the key challenges for banks taking the advanced approach (AMA) to Basel II has been developing models satisfy both local regulators and the Basel II accord itself.
For his work in developing St.George Bank’s AMA model, Woodbury was named PricewaterhouseCoopers’ risk professional of the year at the Australian Risk Management Awards 2006.
Describe your role
In December 2004 an opportunity arose in the area of enterprise level risk management focusing on economic and regulatory capital, an area that I had worked in earlier. The focus of the role was on operational risk measurement. Then, as now, the measurement of operational risk was a very rapidly evolving, and a relatively new field. However, APRA had determined that no Australian bank would be allowed to move to the advanced approaches to managing credit and market regulatory capital unless it was also accredited to use an advanced approach to managing operational regulatory capital. I took up the role of building a model that would make St.George an Advanced Measurement Approach (AMA) bank, to enable it to become a Basel II bank, capable of sophisticated economic capital management. The other banks applying for AMA status included the four major banks, and two others. My objective was to develop, fully implement, and document an AMA model for Operational risk.
How does it fit into the risk management structure of the bank?
I’d say “embedded” is the best word to describe the approach St. George is moving towards in structuring its risk management function. Staff who are the technical authorities on the risk models have distinct reporting lines through to the CRO. Similarly, many of the operational risk management staff are located in the divisions where they are close to the action. Having said that, there is a great deal of interaction between various business units for example between modelling experts from Operational, Credit, and Market Risk. This level of interaction is likely to increase as risk management moves towards an enterprise view.
What is the most challenging aspect of your role?
In terms of building a team to accomplish the objectives that were set out, I have focused very much on technical ability and creativity. I believe that this is of great importance, particularly in this area of rapid evolution. Another key challenge of the role was gaining sufficient authority to influence business project managers to meet my needs in terms of data, and to direct IT project managers in terms of systems implementation. This was achieved through the development of business requirements documents. Change management and training of risk management staff throughout all of the divisions of the bank in AMA practices was also given a high priority to ensure cultural acceptance across the organisation.
What are the main issues relating to your role within risk management?
The ability to consistently exercise sound business judgement will continue to be important. But the organisations that will move forward in risk management will be the ones that recruit and empower people who also display the qualities of creativity and technical known-how. Regulators are not telling organisations how to develop their risk management practices, but rather they are requiring that organisation do the research and come up with all the ideas. Organisations that can come up with the best ideas will succeed.
Why/how did you begin your career in risk management?
It started with an interest in mathematics, which developed into an interest in probability, which developed into an interest in risk. My first job was developing and programming software to price home and contents insurance policies for Westpac when they started up their general insurance business in 1997.
What would your advice be to someone starting out in this area?
In my view, the first step in risk management is risk measurement. You sometimes hear the saying “What get measured gets managed”. The other general principle I like to use is that risk equals uncertainty. Therefore, one first tries to minimise the uncertainty by using data and then measure the uncertainty so that it can be managed.
What do you see as the key future trends in quantitative risk analysis?
I think that models that can be calibrated to data will become more desirable. Organisations are collecting more and more data all the time and will need models that can be used to turn this data into meaningful information.
How much will Basel II change the way banks do business?
Risk will be included as part of performance. Riskier businesses will have to start paying the price for risk. This won’t stop risk taking. It will just ensure that an appropriate return is made given the level of risk in a business.
Is external (ie mainstream) recognition of the business benefits of risk management increasing?
I think so, but there is some resistance from those who have invested heavily in the old ways of doing things.
Greg Woodbury is senior quantitative analyst at St George Bank
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