Consulting

We are a small team of highly specialized and expert engineers. We assist our clients in an extremely flexible way, from a few hours of training on our tools and methods, to projects lasting several months to design or redesign a risk measurement system.

Use cases

Operational Risk Regulatory Requirements (CCAR, Capital)

Operational risk represents a significant share of regulatory capital for financial institutions. This capital is driven by major and extreme events and not by an unexpected increase of recurring events.
MSTAR allows a forward-looking, structured assessment of major scenarios (fraud, cyber, legal, conduct, disruptions) and is used in regulatory approved models in US, UK and Europe.

Operational Risk Insurance Coverage

Firms must adapt their insurance programs to their risk profile. This concerns both the average risk to assess premiums and the extreme risk to assess the limits.
MSTAR allows mapping between scenarios and insurance lines, taking into account deductibles, aggregates, and other parameters.
MSTAR simulations help improving the insurance coverage and support negotiation with the insurers.

Operational Risk Controls

Risk mitigation actions are relatively easy to assess for recurring risks: an improved control can be directly evaluated on the observed number of incidents or their cost.
But how can one assess the effectiveness of mitigation actions on extreme events, since these risks happen very rarely?
MSTAR what-if analysis allows testing of mitigation actions, and helps justifying the investments necessary for their implementation.

TCFD - Metrics and Targets

As part of the preparation of a TCFD report, financial institutions need to establish a measurement framework.
Based on our methodological approach for Climate related stress assessment we propose a 4-step approach :
  1. Scenarios: identify and organize the possible futures as considered by the IPCC and other bodies
  2. Impact: evaluate the impact of each scenario on each country and each economic sector.
  3. Sensitivity: analyse the sensitivity of exposure units (e.g. business segments) to transition and physical risk, using proxies when the detailed information is not available.
  4. Aggregation: merge the individual impacts derived from the anticipated scenarios applied to the portfolio of sensitive units in order to get a range of enterprise wide potential impacts

Climate Stress on Corporate Credit Risk

To assess the impact of climate change on corporate credit risk, we define two indicators for each borrower:
  • The sensitivity to transition is the ratio between emissions and profits.
  • The sensitivity to physical risk is the expected increase in natural disasters in the regions where the company primarily operates.
These sensitivity indicators are transformed into default probability multipliers, using the Merton model and the Black-Scholes equations.
Please download our brochure here and our research paper here.

Climate Stress on Operational Risk

Climate Stress will impact Operational Risk through various causal paths, including:
  • Increase of natural disaster will impact not only banks but also their suppliers. (Disruption)
  • Climate change will expose some major companies to lawsuits, and may expose their financial partners to liability (Legal risk)
  • New climate regulations will generate new obligations for banks and create new risks of misconduct (Conduct risk)
  • Climate change will change the geostrategic balance and increase the risk of cyber-attacks, especially by states (Cyber risk)
Using MSTAR's structured risk scenarios, the impact of climate change on oprisk can be assessed seamlessly.
Please download our brochure here and our detailed presentation here.

To find out how our team, our methods or our tools can help you, contact us.

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New York, NY

Paris

85 rue Edouard Vaillant
92300, Levallois Perret
Paris, FR