Chapter 2 Commercial banks True/False questions

1. 2. !. #. %. ). +. -. /. 10. 11. 12. 1!. 1#. 1%. F Each nation-state is no longer responsible for the prudential supervision of commercial T here is a direct correlation between the level of bank regulation and the dominance of the F Banks obtain funds from a number of different sources. hese sources of funds appear as F $iability management is the strategic limitation of commercial bank lending to match a T &unds held in a che'ue account are highly li'uid and are called (current deposits". F *all deposits are not a stable source of funds for banks because the deposits can be T , negotiable certificate of deposit is a discount security that may be issued into the money T .ne of the attractions for a bank of funding a client through a bank bill facility is that the F , bank may seek to obtain funds by issuing unsecured notes with a collateralised charge F Bank regulators restrict the type and amount of securities that commercial banks can issue T 1ortgage originators often use the process of securitisation to finance their housing F , housing loan with an amortised loan re'uires the borrower to make periodic interest -only F Small- to medium-si2ed businesses mainly borrow direct from the capital markets3 while T , reference interest rate such as the BBS4 may be used periodically to set the interest rate F he deregulation of the banking sector means that it is no longer necessary for the central banks as this is now the responsibility of the Bank for International Settlements. commercial banks within a financial system. assets on a bank"s balance sheet. bank"s current deposit base.

withdrawn on demand. markets. security can be sold into the money markets. over the assets of the institution. into the international capital markets. lending activities. instalments and repay the principal at the maturity date. large corporations with good credit ratings prefer to borrow from the banks. on a variable-rate loan. bank to concern itself with the overall stability of the financial system.

1). 1+. 1-. 1/. 20.

T .ff-balance-sheet business is a transaction where a contingent liability e5ists and therefore T 6erivative products are primarily designed to facilitate hedging risks such as changes in F 7nder the Basel II capital accord3 banks are re'uired to maintain a ma5imum risk-based F 8illar ! of the Basel II capital accord re'uires commercial banks to report directly changes T he standardised approach to the measurement of 8illar 1 credit risk allows a bank to use

it cannot be recorded on the balance sheet. interest rates or e5change rates. capital ratio of -.00 per cent at all times. in their capital structure to the Bank for International Settlements. e5ternal credit ratings.

Essay questions
The following suggested answers incorporate the main points that should be recognised by a student. An instructor should advise students of the depth of analysis and discussion that is required for a particular question. For example, an undergraduate student may only be required to briefly introduce points, explain in their own words and provide an example. On the other hand, a post-graduate student may be required to provide much greater depth of analysis and discussion.

1.

Banks have moved rom a practice kno!n as asset mana"ement to the practice o

liability mana"ement.# E$plain the di erences in these t!o approaches and brie ly discuss the role o dere"ulation in acilitatin" this chan"e in bankin" practice. %&' 2.1( Asset management relates to the practice of a bank only giving loans (assets) when it had sufficient depositsthat is, asset growth is managed, and often constrained by, the banks deposit base. Liability management relates to the practice of raising funds (liabilities) in the capital markets sufficient to meet expected forecast loan demandthat is, lending is not constrained by the liability side of the balance sheet. For example, a commercial bank may forecast an increase in loan applications over the next sixmonth planning period. After considering its current sources of funds, it may decide to issue paper into the international capital markets in order to raise sufficient funds to meet the forecast demand.

Modern banking practice is the application of liability management. The removal of regulation has facilitated this change. Banks are no longer constrained by the size of their deposits in determining how much to lend.

2.

Banks have al!ays been the dominant institutions !ithin the inancial system) but

their relative importance has luctuated due) in part) to chan"es in the re"ulatory environment in !hich they operate.# *nalyse and discuss this statement. %&' 2.1( Until early 1980s commercial banks operated in a protected but highly regulated market. In order to avoid regulation other non-bank financial institutions emerged and grew strongly, attracting an increasing market share. During this period the size of the banking sector diminished. Government, through the central bank, found their influence on economic activity also diminished as their control of the overall financial system lessened. There are two choicesregulate all financial institutions, or deregulate the banks. Most developed countries, including Australia, have deregulated the commercial bank sector. For example in Australia in the 1980s, controls on interest rates and bank products were removed. The exchange rate was floated. Foreign banks were granted banking authorities. In the new competitive environment the banking sector has grown strongly. Commercial banks must still meet certain regulatory requirements, such as minimum capital and liquidity requirements, set by the bank supervisor to ensure an efficient, strong and stable financial system. +. * customer has approached your commercial bank seekin" to invest unds or a period

o si$ months. The customer is particularly !orried about risk ollo!in" the ,FC and the market volatility that continues to characterise !orld inancial markets. E$plain the eatures o call deposits) term deposits and C-s to the customer and provide advice on risk.re!ard trade.o s that mi"ht be associated !ith each product. %&' 2.2( Term deposit: pays a fixed interest rate for the nominated fixed investment period rate of interest will be banks carded rate for that term and amount interest may be payable periodically (e.g. monthly) or at maturity

principal is repaid at maturity.

Certificate of deposit: discount security issued by a bank an investor will purchase the CD at less than the face value the investor will receive the full face value back at maturity price is the face value discounted by the yield yield/price relationship will vary with changes in market rates.

9isk-reward trade-offs: /. a call deposit will pay a very low rate of interest but will be essentially risk free a CD is a highly liquid form of investment that will pay a higher rate than the call deposit a CD can easily be sold into the money market to obtain funds, whereas with a term deposit there is a loss of liquidity as the funds are locked-up for the fixed period however, a term deposit may pay a higher rate of return. -iscuss the our main uses o unds by commercial banks and identi y the role that the

purchase o "overnment securities plays in commercial banks# mana"ement o their asset port olios. %&' 2.+( Personal and housing finance Commercial lending Lending to government Other bank assets For banks, government securities are a primary source of liquidity:
o o o o o

government securities easily converted into cash invest short-term surplus fundssecurities provide a return, cash does not augment investment earningsanother source of income use as collateral for future borrowingssecurity to support banks own borrowings use for repurchase agreements to raise exchange settlement account fundssell securities back to central bank and receive cleared funds

improve the quality of the overall balance sheetlower risk government securities offset higher risk loans to customers

manage the maturity structure of the overall balance sheetaverage maturity structure of government security portfolio will be less than the loan portfolio

manage the interest rate sensitivity of the overall balance sheetpurchase government securities with interest rate structures that offset interest rate risk within the overall loan portfolio.

0.

Commercial banks are the principal providers o loan inance to the household sector.

1denti y ive di erent types o loan inance that a bank o ers to individuals. Brie ly e$plain the structure and operation o each o these types o loans. %&' 2.+( .wner-occupied housing finance;loans to purchase residential property such as a house or unit. Security is a mortgage taken over the land and property thereon. 1ortgage registered on title of land. $oan may have a fi5ed or variable interest rate. $oan instalments paid periodically <monthly= and typically amortised <interest and principal components=. Investment property finance;very similar to above3 e5cept property is usually leased to a third party. Interest rate generally higher reflecting higher risk of lease agreement. &i5ed-term loans;used to finance non-property transactions such as buying a car. Bank will seek security such as a guarantee from the borrower or a third party. >igher interest rate reflects higher credit risk associated with borrower and lower 'uality security. 8ersonal overdrafts;allows an individual to place their account into debit up to an agreed limit. 7sed for managing cash flow mismatches over time. Should be fully fluctuating. 8ay interest on the debit amount? also unused limit fee. *redit card finance;plastic card issued with an available credit limit3 that is3 the cardholder can make purchases or obtain cash advances up to the amount of the credit limit. >igh interest rate charged on used credit. 2. *BC &imited plans to purchase in3ection mouldin" equipment to manu acture its ne!

ran"e o plastics products. The company approaches its bank to obtain a term loan. 1denti y and discuss important issues that the company and the bank !ill need to ne"otiate in relation to the term loan. %&' 2.+( he bank and the borrow will structure the loan and negotiate the terms and conditions of the loan

8eriod of the loan;consider matching principal? what are the funds being used for Interest rate;fi5ed versus variable interest rate? if variable3 what is the reference interest rate <e.g. BBS4= and the margin above the reference rate Security;will the lender be able to take a mortgage over property or a charge over the other assets of the borrower iming of repayments;how fre'uently will loan instalments occur? will the loan be amortised <interest and principal components=3 or an interest only loan with principal repaid at maturity.

4.

The o .balance.sheet business o banks has e$panded si"ni icantly and) in notional

dollar terms) no! represents over our times the value o balance.sheet assets. %&' 2./( %a( -e ine !hat is meant by the o .balance.sheet business o banks. a transaction that is conducted by a bank that is not recorded on the balance sheet a contingent liability that will only be recorded on the balance sheet if some specified condition or event occurs. %b( 1denti y the our main cate"ories o o .balance.sheet business and use an e$ample to e$plain each cate"ory. Direct credit substitutessupport a clients financial obligations, such as a stand-by letter of credit or a financial guarantee Trade and performance related itemssupport a clients non-financial obligations, such as a performance guarantee or a documentary letter of credit Commitmentsa financial commitment of the bank to advance funds or underwrite a debt or equity issue. For example, the unused credit limit on a credit card, or a housing loan approval where the funds have not yet been used Foreign exchange, interest rate and other market rate related contractsprincipally derivative products such as futures, forwards, options and swaps used to manage f/x and interest rate risk exposures. 5. Follo!in" the ,FC) the o .balance.sheet activities o commercial banks attracted a

"reat deal o attention amon" commentators. 6ith re erence to the si7e and composition o commercial banks# o .balance.sheet activities) outline some o the possible reasons or this concern. %&' 2./(

he notional value of the off-balance sheet activities of banks is five times the total value of the assets held by the banks. Because this off-balance sheet activity is less transparent3 it is difficult for regulators to assess the financial health of financial institutions. ,lso of concern is the type of securities that constitute off-balance sheet activities. hese may include the types of derivative securities that played such an important role in the @&*.

8.

9ation.state bank re"ulators impose minimum capital adequacy standards on

commercial banks. %&' 2.0( %a( Brie ly e$plain the main unctions o capital. equity and quasi-equity capital is a source of long-term funds for an institution it provides the equity funding base that enables on-going growth in a business it is a source of profits it may be necessary to use capital to write-off periodic abnormal business losses.

%b( 6hat is the minimum capital requirement under the Basel 11 capital accord: The prudential standard requires an institution, at a minimum, to maintain a risk-based capital ratio of 8.00 per cent at all times. At least half of the risk-based capital ratio must take the form of tier 1 capital. The remainder of the capital requirement may be held as tier 2 (upper and lower) capital. Where considered appropriate, a regulator may require an institution to maintain a minimum capital ratio above 8.00 per cent. %c( 1denti y and de ine the di erent types o acceptable capital under the Basel 11 capital accord. ;rovide an e$ample o each type o capital.
o o o o

*apital3 within the conte5t of the Basel II capital accord3 is measured in two tiers ier 1 capital3 or core capital3 comprise the highest 'uality capital elements: provide a permanent and unrestricted commitment of funds are freely available to absorb losses do not impose any unavoidable servicing charge against earnings rank behind the claims of depositors and other creditors in the event of winding-up. ier 1 capital must constitute at least half of a bank"s minimum re'uired capital base

ier 23 or supplementary3 capital includes other elements which also contribute to the overall strength of an institution as a going concern ier 2 capital is divided into two parts: upper tier 2 capital;comprising elements that are essentially permanent in nature3 including some hybrid capital instruments which have the characteristics of both e'uity and debt
o

lower tier 2 capital;comprising instruments which are not permanent? that is3 dated or limited life instruments.

E5amples:
o o o

tier 1 capital: ordinary shares? retained earnings tier 2 capital <upper=: mandatory convertible notes? perpetual subordinated debt tier 2 capital <lower=: term subordinated debt approved by the regulator. ;illar 1 o the Basel 11 capital accord includes an operational risk component. %&' 2.2(

1<.

%a( -e ine operational risk. he Bank for International Settlements categorises operational risk as: internal and e5ternal fraud employment practices and workplace safety clients3 products and business practices damage to physical assets business disruption and system failures e5ecution3 delivery and process management.

%b( =sin" the standardised approach) e$plain ho! a commercial bank is required to measure the operational risk component o its minimum capital adequacy requirement. Basel II re'uires banks to hold additional capital to support their e5posure to operational risk 4ith the standardi2ed approach to operational risk an institution is re'uired to map and divide its activities into two areas of business: o retailAcommercial banking o all other activity. ,n institution must document its mapping process3 detailing the policy and procedures used to map the full range of business activities. his process must be subBect to independent review.

he retailAcommercial banking area capital re'uirement is determined using a proportion of an institution"s total gross outstanding loans and advances as an indicator of that area"s operational risk e5posure. his also includes the book value of securities held in the banking book.

he operational risk capital re'uirement for the all other activity area of business is determined using a proportion of an institution"s net income as an indicator of that area"s operational risk e5posure. Cet income is defined as profit from ordinary activities before goodwill3 amorti2ation and income ta5.

.perational risk capital for retailAcommercial banking is calculated by taking the last si5 consecutive half-yearly observations of total gross outstanding loans and advances3 then multiplying a proportion3 being !.% per cent3 of total gross outstanding loans and advances at each observation point3 by a factor of 1% per cent3 to produce a result in respect of each observation3 then determining an average result for the si5 observations.

he operational risk capital for all other activity is calculated by taking the last si5 consecutive half-yearly observations of net income earned over a si5 month period3 multiplying each observation point by a factor of 1- per cent to produce a result in respect of each observation3 then determining an average result for the si5 observations.

he total operational risk capital re'uirement under the standardised approach to operational risk is the sum of the two average results determined above.

11. 2.2(

The third ;illar 1 component o the Basel 11 capital accord relates to market risk. %&'

%a( -e ine market risk. the risk of losses resulting from movements in market prices for capital ade'uacy purposes there is general market risk and specific market risk general market risk relates to changes in overall market for interest rates3 e'uities3 foreign e5change and commodities specific risk is the risk that the value of a security will change due to issuer specific factors3 such as a change in the creditworthiness of the issuer. his is only relevant to interest rate and e'uity positions. %b( * bank may use its o!n internal value.at.risk %>a?( model to measure market risk. Brie ly e$plain ho! a >a? model operates. 1n your ans!er identi y the basic >a? model requirements set by *;?*.

Da9 models endeavour to estimate ma5imum potential gains or losses that may be incurred on a portfolio based on a specified probability over a fi5ed time period. he regulator re'uires a model to apply a // per cent confidence level3 assuming a one-day holding period. his assumption implies that3 on average3 trading losses from market-related contracts will e5ceed the Da9 estimate only once in every 100 trading days.

, Da9 model recognises balance sheet and off-balance-sheet items and3 based on specific assumptions on prices3 values and volatility3 determines a Da9 estimate. , Da9 model will typically:
o

estimate sensitivity to small changes in prices3 for e5ample a 1 basis point change in interest rates assume that market price movements follow a certain statistical distribution3 usually a normal or log-normal distribution enable inferences to be drawn about potential losses3 with a given degree of statistical confidence3 for e5ample a // per cent probability of a certain dollar amount loss recognise correlations between different portfolio components? that is3 the model allows for market price changes that move together3 or offset each other account for the effects of portfolio diversification consider the li'uidity of different portfolio instruments? that is3 the ease or ability of an institution to li'uidate <sell= securities or close out an open risk position.

o o

12.

6ithin the conte$t o the Basel 11 capital accord) e$plain and discuss@ he supervisory review process establishes a forum for dialogue between commercial banks and their supervisors Bank supervisors are e5pected to intervene when capital assessment by a bank is seen as inade'uate for its risk profile 8illar 2 encourages additional internal risk management practice by banks Supervisors are responsible to ensure compliance by banks with the minimum standards and disclosure re'uirements attached to the capital accord he Basel *ommittee on Banking Supervision has identified four key principles of supervisory review:

%a( ;illar 2@ The supervisory revie! o capital adequacy.

o 8rinciple 1: banks should have a process for assessing their overall capital ade'uacy in relation to their risk profile and a strategy for maintaining their capital levels o 8rinciple 2: supervisors should review and evaluate banks" internal capital ade'uacy assessments and strategies3 as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process o 8rinciple !: supervisors should e5pect banks to operate above the minimum regulatory capital ratios and should have the ability to re'uire banks to hold capital in e5cess of the minimum o 8rinciple #: supervisors should seek to intervene at an early stage to prevent capital falling below the minimum levels re'uired to support the risk characteristics of a particular bank and should re'uire rapid remedial action if capital is not maintained or restored. %b( ;illar +@ Aarket discipline. %&' 2.2( he purpose of 8illar ! is to encourage market discipline by developing a set of disclosure re'uirements which allow market participants to assess important information relating to the capital ade'uacy of an institution his is important because under the capital accord banks are given greater discretion in assessing their capital re'uirements through the use of internal methodologies and models he obBective is to ensure banks" risk e5posure3 risk management and capital ade'uacy positions are more transparent so that market discipline can reinforce the regulatory process Institutions must provide the prudential supervisor with all material information relevant to risk e5posures3 risk management and capital ade'uacy Supervisors will determine the minimum disclosure re'uirements for institutions within their Burisdiction. hey will also determine the fre'uency of various reporting re'uirements Basic reporting re'uirements will include reports on the: o scope of the application of the capital accord within an organi2ation o capital structure of the institution o methodologies3 approaches and assessment of capital ade'uacy o determination of all aspects of credit risk e5posures o application of credit risk mitigation o determination of e'uity risk within the banking book

o impact of securiti2ation of assets o the determination of market risk e5posures o the measurement of operational risk o the assessment of interest rate risk within the banking book. 1+. *s part o the prudential supervision o banks the re"ulator requires banks to use an

internal model such as >a? to estimate potential "ains and losses. 'utline some o the stren"ths and !eaknesses o >a? models and brie ly e$plain !hy re"ulators have moved to implement a stressed >a?# requirement or *ustralian banks. %&' 2.4( Strengths: enable inferences to be drawn about potential losses with a given degree of statistical confidence, for example a 99 per cent probability of a certain dollar amount loss. recognise correlations between different portfolio components (i.e. the model allows for market price changes that move together or offset each other) account for the effects of portfolio diversification consider the liquidity of different portfolio instrumentsthat is, the ease or ability of an institution to liquidate (sell) securities or close out an open risk position.

Weaknesses: are based on a limited set of historical data which may not be a correct reflection of future data assume liquidity in all marketsthat is, the ability of an institution to trade all components of its portfolio. This will not always be the case, particularly in times of financial stress assume that all instruments can be liquidated in one day. This is not possible. Contractual constraints also mean that some items cannot be liquidated do not include excessive intra-day price volatilitythat is, unusually large short-term exchange rate or interest rate movements assume a normal distribution, when data indicate that in some markets prices may be

volatile and a normal distribution is not always evident. he (stressed" Da9 aims to ensure that banks are prepared for events that would normally have a very low probability3 especially when the models are based on historical data and normal distributions.

E$tended learnin" questions

1/. The Basel 11 capital accord comprises a rame!ork o three pillars. ;illar 1 established the minimum capital required by a commercial bank and incorporates three risk components@ credit risk) operational risk and market risk. %&' 2.5( %a( -e ine credit risk. credit risk is the risk that counterparties to a transaction will default on their commitments for e5ample3 the risk that a borrower may default on the payment of interest andAor repayment of loan principal. %b( 6hat approaches may be used to measure the credit risk capital adequacy component o ;illar 1: Basel II provides three alternative ways for a bank to measure credit risk: 1. the standardised approach 2. the foundation internal ratings-based approach3 or !. the advanced internal ratings-based approach. %c( =sin" the standardised approach to credit risk) e$plain ho! a commercial bank !ill use this method to calculate its minimum capital requirement. he standardised approach to credit risk re'uires banks to assign each balance sheet asset and off-balance sheet item a risk weight. he risk weight must be based on an e5ternal rating published by an approved credit rating agency <such as Standard and 8oor"s=3 or a fi5ed weight specified by the prudential supervisor. he risk weighted amount of a balance sheet asset is calculated by multiplying its current book value by the relevant risk weight. Balance sheet e5ample: a bank gives a E%00 000 loan to a company that has an ,- credit rating <e5ternal rating grade 2 F risk weight %0G=. he capital re'uired is the book value 5 the risk

weight 5 -.00G capital ade'uacy re'uirement. hat is3 E%00 000 5 0.%0 5 0.0- F E20 000. he remaining E#-0 000 can be funded from bank liabilities. .ff-balance sheet e5posures that give rise to credit risk are first converted into so-called balance sheet e'uivalents according to specified credit conversion factors prior to allocating the relevant risk weight. .ff-balance sheet e5ample: a bank provides a company with a B credit rating a E2% 000 documentary letter of credit. his has a credit conversion factor is 20 per cent and an e5ternal rating grade % representing a risk weight of 1%0 per cent. he capital re'uired by the bank to support this off-balance sheet transaction is E2% 000 5 0.20 5 1.%0 5 0.0- F E)00. 10. Commercial banks are e$posed to the very real risk that at some point their critical ail. Business continuity risk mana"ement may be said to

business operations could %&' 2.8(

incorporate a disaster recovery plannin" process and a disaster recovery response process. %a( -e ine business continuity risk mana"ement. he purpose of business continuity risk management is to ensure a bank and its personnel are prepared to respond to an event that disrupts critical business functions and are able to effectively recover those functions. It relates to an institution"s ability to maintain its day-to-day business operations. he risk of adverse operational and financial outcomes resulting from inade'uate or failed internal or e5ternal processes3 people3 systems or events. o &or e5ample3 losses incurred from fraud by personnel3 or failure of computer or communication systems3 or loss of premises due to a fire or earth'uake. %b( 1denti y and brie ly e$plain the core components o a disaster recovery plannin" process. 1. he establishment of an organisational business continuity risk management structure that is hori2ontally and vertically integrated throughout the bank3 including a global risk committee3 a business continuity risk management group and divisional contingency planning units. includes planning teams3 emergency response teams and recovery teams 2. 9isk analysis and business impact analysis;risk analysis ensures all risk e5posures are identified. he business impact analysis measures the operational and financial effects of a disruption to a business function. his

!. Business function recovery prioritisation to ensure available resources are used to effectively recover critical business functions. #. 6evelopment of disaster recovery strategies that will maintain critical business functions if a business disruption occurs? includes disaster recovery service agreements and support agreements. %. Education and training maintain the preparedness and capability of a bank and its people to respond to a disaster situation. ). Integrated testing of disaster recovery strategies ensures they will be effective in the event of a disruption to critical business functions. +. 8lan maintenance that incorporates on-going monitoring3 review3 reporting and auditing of the bank"s business continuity risk management processes. %c( 1denti y and brie ly e$plain the core components o a disaster recovery response process. 1. 8lan activation3 including disaster alert trigger points3 notification procedures for emergency response teams3 and activation of recovery strategies. 2. Impact assessment and evaluation by divisional recovery teams3 including estimates of resources and time re'uired to recover functions and advice on which recovery strategies need to be implemented. !. 9ecovery control centre where key personnel will direct recovery operations. he centre facilitates the control3 command and coordination of the management decision processes. #. *ommunications and media liaison. *ommunications to be established with divisional recovery teams3 and providers of recovery facilities3 service and support agreements. 1edia liaison to be established with bank supervisors3 government authorities3 the press3 customers and other market participants. %. Implementation of prioritised business recovery using back-up strategies3 facilities3 service agreements and support agreements established in the bank"s overall business resumption plan ). 8erformance evaluation3 reporting and plan review. 12. *n essential element o business continuity risk mana"ement is education and trainin".

%&' 2.8( %a( 6hy is education and trainin" important in the conte$t o business continuity risk mana"ement:

Education and training is integral to achieving an institution"s business continuity risk management obBectives. Education and training will improve the capability and preparedness of institutions and their personnel to plan for3 and respond to3 an occurrence that may affect the continuity of critical business functions.

Effective responses by personnel will minimise risk to personnel3 limit the operational impact of a business disruption3 and lessen the financial cost of a disruption. he obBective of business continuity risk management is to establish policies and procedures that will ensure the capacity of a bank to maintain the continuity of its critical business functions and resume normal operations within defined time parameters. Education and training is an essential in achieving this outcome.

%b( 1denti y three discrete education and trainin" pro"rams that a bank should provide. 1. InductionAawareness program.; o be completed by all bank personnel3 plus non-bank personnel from organisations that provide critical services to the bank. It introduces the basic operational risk management knowledge and awareness re'uired of all personnel. 2. *ontingency planning program for personnel responsible for core components of the disaster recovery planning and response processes that need specialist knowledge and skills to effectively complete those tasks. 8articipants include organisational business continuity risk management group members3 divisional contingency planning unit members and nominated global risk committee members. !. E5ecutive program for the board of directors and e5ecutive management to assist in determining appropriate business continuity risk management obBectives3 policies3 strategies and procedures. %c( Brie ly discuss !hat issues should be incorporated in each o the three education and trainin" pro"rams.
;ro"ram 1 Business continuity risk mana"ement . induction/a!areness . ;ro"ram 2 Business continuity risk mana"ement . contin"ency plannin" . what is a disaster: why is disaster risk management important? organisational disaster risk management obBectives3 policies and procedures bank disaster risk management organisational structure risk and the disaster recovery planning process the disaster recovery response process how to respond in a disaster situation applying learning into practiceplan construction of a contingency risk analysis3 business impact analysis and recovery prioritisation disaster recovery strategies3 service agreements and support agreements emergency response teams3 divisional recovery teams and communications disaster recovery plan testing plan maintenance3 monitoring and review

;ro"ram + Business continuity risk mana"ement . e$ecutive .

corporate governance and risk management business continuity and disaster risk management regulation and prudential supervision obBectives3 policies3 procedures3 budget3 infrastructure disaster risk management organisational structure global best practice disaster response: recovery control centre3 communications3 media liaison

14. 2.1<(

%a( -iscuss the nature o corporate "overnance and its relationship !ith ethics. %&'

%b( -iscuss the importance o corporate "overnance and ethics or *ustralian *-1s both in terms o complyin" !ith re"ulations and e ectively meetin" the e$pectations o stakeholders. %&' 2.1<( Corporate governance is the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations. It encompasses the mechanisms by which companies, and those in control, are held to account. Corporate governance influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised. ,lthough corporate governance does not specifically concern (ethical" behaviour3 it may work hand-in-hand with a firm"s statement of ethical or professional conduct. &or ,6Is3 where the confidence of customers and clients is of the utmost importance3 demonstrating strong governance frameworks and ethical behaviour is a very important component of corporate strategy.