Have fun with the banking crisis
The Business Rules Tool has an advertisment on its web page:
Forrester Case Study: Hypo Real Estate Enables Credit Risk Professionals With Business Rules
Credit Risk Rating Platform
Traditional approaches to credit risk assessment models are too rigid and inflexible to meet the increasing demands of complexity, transparency and flexibility. With the Credit Risk Rating Platform, Innovations offers a platform that enables transparent implementation of rating models and their seamless deployment in operations
On 17 April 2009, SoFFin tendered an offer to take over Hypo Real Estate by buying and creating shares that would raise its equity stake to 90%. On 24 April 2009 the HRE governing boards recommended that shareholders approve the offer by the rescue agency. By that date, government support for the company had reached €102 billion. Under a new law passed in March, the government could force the sale if shareholders reject it.
Meanwhile, the German parliament formed a committee to investigate the HRE bailout. Opposition parties from the left and right spurred creation of the committee, while the governing centrist coalition abstained.
Obviously the tool did not work as expected.
Hypo Real Estate recently launched on this platform in Q1, 2009, long after the seeds of the crisis were planted. The platform will help HRE's recovery by giving them the transparency and agility they needed to adapt their models to changing conditions. It´s good to be part of the recovery process. It´s also HRE´s chance to now develop new best practices around risk management.
My "Honourable Mention" was not to blame HRE or the tool-vendor
But the facts are clear, that the Forrester study is not based on facts on the situation within HRE, either it was paid by HRE or the tool-vendor.
In April 2008, HRE made the decision to move forward with Visual Rules and started a project to
implement the existing models of DEPFA (!) in business rules and to run them in parallel against the existing Excel spreadsheets.
According to Mr. Kang, the new platform works well: “I think a lot of banks don’t know that something like this exists or don’t trust it.
In reality, using this business rules platform is very flexible and easy.” The new business rules approach satisfied regulators, risk modelers, dealmakers, and IT:
Regulators are satisfied because the models are auditable. When HRE acquired DEPFA, it was
clear that the German regulators would not accept the use of Excel as a credit risk management
tool. The new approach has a well-defined, auditable process for creating models and deploying
them on IT-supported infrastructure. The German regulators did not consider emailing
multiple versions of Excel spreadsheets around to be a “proper IT environment.” (!)
Facts: (sorry in german / Mostly Spiegel Online)
---> Über die "Existing Models of Depfa"
Die Dokumente (der Finma) belegen, dass das Missmanagement der HRE und ihrer irischen Tochter Depfa - dem Zentrum des Problems - weitaus größer war als bislang bekannt.
Die BaFin hatte einst die Prüfung der Depfa im Frühjahr 2008 verfügt. Zwei Monate lang durchleuchteten Mitarbeiter der Bundesbank vier Institute der HRE-Finanzholding, darunter die Depfa in Dublin.
Ihr Bericht beschreibt Geschäfte, die kaum mehr zu verstehen sind, und astronomische Summen, die meist auf neun Nullen enden.
---> Über die "Satisfaction of the Regulators"
Allein 49 Verstöße gegen "das ordnungsgemäße Betreiben der Geschäfte und die Funktionsfähigkeit des Risikomanagements" listet der Prüfbericht der Bundesbank vom 24. Juni 2008 auf - darunter zwölf der Kategorie "gewichtige" Beanstandungen und 29 "mittelschwere".
In dem Begleitschreiben, das die Bundesbank-Prüfer drei Tage später an die BaFin schickten, empfahlen sie den Kollegen, den HRE-Vorstand über das Ergebnis zu informieren.
Dabei sollte "klar zum Ausdruck gebracht" werden, dass die "teilweise gravierenden Feststellungen insbesondere im Bereich Risikomanagement (...) nicht toleriert werden können", forderten sie.
Denn aus internen Unterlagen der BaFin, die SPIEGEL ONLINE vorliegen, geht hervor, dass die HRE mit ihren 400 Milliarden Euro Bilanzsumme eine hochriskante Finanzstruktur hatte - und dabei viele der gesetzlich vorgeschriebenen "Anforderungen an das Risikomanagement" nicht erfüllte.
---> Mentioning the Crisis within the Study
Hypo Real Estate Group is one of many German banks that have been hurt by the financial crisis. On October 31, 2008, Hypo secured 15 billion euros from the German government rescue plan. Source: Ludwig Burger, “Hypo Real taps $19.6 billion in government guarantees,” Reuters, October 31, 2008 (http://www.reuters.com/article/innovationNews/idUSTRE49U3D420081031).
Obviously the Forrester Study is not based on facts, but is based on the interest of some advertisers.
So, if I were the Tool vendor, I would remove that crap from my site, even if I had paid a lot for it.
PS Stefanie, are you working for the tool-vendor, Forrester or HRE ?
You bring up many questions and many topics, but in the end it is very easy to find out the responsible party for conducting the case study. Just contact the authors to see if they were paid to conduct the study, or if it was a case study completed by an independent analyst firm.
If I were the bank, I would want the market to know that we have upgraded to the latest in risk management technology to help us get through the crisis at hand.
If I were the tool vendor, I would publicize it even though the client is in difficult times. I think you mentioned they adopted it in August of 2008, which means it probably didn't launch until long after.
BTW, the same theory goes for Porsche right now, do you blame new tools they have brought in to manage their debt or business partners brought in to help them leverage or cash the options they hold on Volkswagen AG stock? Or do you blame the mistakes they made in taking on such debt and also not being transparent (Per the CEO of Volkswagen)?
The way I read it, it is clear that the focus here is on a product, on a bank and a particular way that business rules are used to help manage credit risk, instead of typical decisions, etc.
There is no economic theory in the study, or even analysis of HRE's financials. You are making a case study into a reason to degrade HRE, which you have a right to do, but in the context of the mistakes they made.
I'm sure this tool provider also has clients that are successful as well. So point your gun at the right target, instead of using a grenade to hit everyone involved.
Just my 2 cents...