Bank Operations Risk – Missing the Point

The Basel II Capital Adequacy requirements have been introduced to encourage banks to improve their management of Credit, Market and Operational Risks. Under the new accord comes a risk based capital requirement specifically for Operational Risk. While capital is important it is only one defense against risk. It is also unlikely that it will be the preferred solution.

An increase in capital will not in itself reduce risk, only management action can achieve this. The control of Operational Risk fundamentally lies with good management. This involves a persistent process of vigilance and continued improvement. Operational Risk Management is a value adding activity that impacts, either directly or indirectly on a bank’s bottom line performance. It therefore should be a key consideration for any bank.

However despite this, the advertising material put out by many technology suppliers on the question of Basel II Operational Risk compliance carries a single message – that Operational Risk Compliance is all about the bean counting, or to put it into their jargon, “DATA MINING”. Not a word is said about the real message flowing from Basle II; – MANAGE the risk and not, repeat NOT only measure it. Undeniably Basel II is more than an exercise in capital allocation and loss data gathering.

Consider the following assortment of claims being made for some of the Basel II software now on offer. It will: (1) Identify the data for Basel II reporting and analysis; (2) Locate that data in operational systems spread out across the whole bank and, in some cases, incorporating it with third-party data; (3) Extract and transform data from operational systems to provide a consistent structure for the data warehouse environment; (4) Clean the data to achieve a consistent and complete view needed for risk calculations, reporting, and analysis;

These folk have missed the point completely. There is also an operational risk management process waiting to be implemented and no one is saying anything about it.

And don’t only take my word for it! The international Rating Agencies have made it abundantly clear where they stand on Operational Risk and how this aspect is going to affect future bank ratings. The following quotations illustrate the point.

“A quantitative approach to operational risk management is not the ultimate solution. … critically important is the implementation of an effective qualitative process of identifying, measuring, managing and controlling operational risk.”

“Since operational risk will affect credit ratings, share prices and organizational reputation, analysts will increasingly include it in their assessment of the management, their strategy and the expected long-term performance of the business.”

Trying to summarize all the risks into a single number or a range of numbers and then trying to manage this down is the first impulse of many banks and they see technology as being the ideal solution. They are creating a false sense of security by turning a blind eye to the real issue – Managing Risk.

Offshore Merchant Accounts

Many people are interested in ways to reduce their current tax liability with the current business they have. They may be concerned about ways to move some of their assets offshore without public notification. Some people are interested in setting up a new business, usually on the Internet, and they need a way to accept credit orders. No matter what your requirement, an Offshore Merchant Account may be what you need.

A merchant account is a facility that allows you to accept credit card orders from your customers online or offline. So what is the main advantage of an offshore merchant account vs.a local one?

One thing that is certainly true about the global credit card business, is that it has become very competitive. As a consumer, you will know that interest rates charged on credit card balances have come down. For business owners, it has meant that where as you were charged high rates in the past to process your customer’s credit card purchases, those rates have come down on average. Yet, there are still problems for the common small businessman wanting to set up his or her own merchant account.

One major problem is the application requirements, and the initial deposit requirements. Some banks or credit card processors will not even accept your application unless your business has been operating for two years or more. Others want a security deposit of £2,000 or more. Some others even want to “hold back” your monthly card payments as an additional “security deposit” for possible “charge backs”.

Many people would agree that technology and modern telecommunications has provided at least some benefit. We now have fax machines, e-mail, and of course the Internet. What many people do not think about however, is the fact that the world has become a much smaller place. What this means for the business owner is, you no longer are “locked in” to doing business with just the bank or company in your town or state. You can literally “shop the globe” for the best rates, the best products, the best service, or what ever. You now can do business with a bank or credit card processor in Germany, Singapore, Holland, or any place else just as easily as “the bank down the road”. In fact, nine times out of ten, you will find the level of service to be much better with a bank half way around the world, then you will with your neighborhood bank. Why? They want your business, and they are willing to prove it. The other benefits are obvious. If you intend to be virtual, the best place to begin is by becoming virtual in fact. An offshore merchant account places you in a virtual / offshore jurisdiction.

The problem of course with some offshore banks or credit card processors are the higher processing fees. The fierce competition that has been seen in the US, has not reached some parts of the world, at least not yet. However that is slowly changing. In addition, such things as “Internet Banking” and offshore merchant accounts are new services that many offshore banks are just starting to take a look at. Even in a banking location such as Panama, these services are not even available with a handful of banks.

Well, being able to get better service, little or no hassles getting your account opened, and lower or perhaps no deposit requirements are only the “tip of the iceberg”. The fact of the matter is, if you have an offshore bank or merchant company process your credit card transactions for you, your money already is “offshore”. This being the case, you now have the means to really make the most of your business income and keep more of what you earn.

Lower Your Credit Card APR

APR often matters the most while deciding for a credit card. It is a common (and correct) notion that credit cards with additional benefits invariably have high APRs. This is true for almost every credit card company that exists.

You may be having a credit card that has a high APR but offers you certain irresistible benefits and advantages. It may have some membership benefits that you have become so accustomed to. There can be innumerable benefits for you, but you may realize after a certain point of time that you are paying a high APR for your credit card than the other credit cards in the market. This can be a puzzling position to be in, as you do not want to lose the benefits that you are availing because of the credit card and you also do not want to pay a high APR. In this situation, is there any way to lower your APR? Well, here we discuss the possible manner of doing so.

Let us assume that you have a good credit history. In this scenario, you will surely receive lots of mails and letters informing you of various new offers and schemes. Your mailbox would invariably be filled with unsolicited letters and mails from credit card companies. Your natural instinct would obviously be to tear and throw it in the dustbin but that is not the way to do it. Check out these brochures and compare the services and APR with your credit card company. You can also check web sites and other sources for comparison between various credit card companies. Once you have done a detailed research of the credit card market, give a call to your credit card company and tell them that you got a better offer, in terms of APR and benefits, from another credit card company. It is highly probable that the executive receiving your call would try to convince you. In such a case, make sure that you talk to the supervisor who would be handling the operations. Then pass on the message that you have received a better offer from another company (probably a competitor). The supervisor may ask you to wait for some more time as there are better schemes around the corner. You have to be adamant and tell that you cannot wait. In most of the circumstances, the supervisor would cut down the APR by around 50%. Even if this happens for a period of six months, you have surely saved some money.