Banco do Brasil

Business challenge

As it works to achieve IRRBB and FRTB compliance, Banco do Brasil plans to unify its finance and risk metrics around a single source of data. To support this effort, the bank will need a big data platform.

Transformation

Building on 20 years of expertise with IBM Financial Risk solutions, Banco do Brasil decided to upgrade its platform, expanding its IBM Algo® One® implementation and investing in IBM Algo Workspace Analyzer for high-speed big data analytics.

Results

Business challenge story

Putting risk management at the heart of the business

As one of the world’s largest financial institutions, Banco do Brasil sees corporate governance as a fundamental pillar of its business. The organization is listed in the “Novo Mercado” segment of Brazil’s B3 stock exchange, a special listing of companies that voluntarily adopt the most demanding corporate governance, disclosure and compliance standards, in addition to governance practices required by the state. It also participates in the “Destaque em Governança de Estatais”, a program for state-owned companies with distinguished corporate governance records.

The bank’s focus on governance goes far beyond simply complying with the latest regulations. It has embedded risk and capital management into its business processes at a fundamental level, and Banco do Brasil’s risk team is constantly working on new initiatives to keep the organization ahead of its competitors, both functionally and technically.

For nearly 20 years, Banco do Brasil has used IBM Financial Risk solutions as its core platform for calculating market and IRRBB risks. Over that time, the organizations have extended the platform to include solutions for interest rate risk and liquidity risk metrics, as well as asset and liability management, capital adequacy and stress testing. The user-base has expanded too—the platform now provides timely risk insight to help front- and middle-office decision-makers not only in the bank itself, but also in the group’s asset management and pension companies.

Iram Souza, Executive Risk Manager at Banco do Brasil, comments: Over the years, the IBM Financial Risk software has always kept pace with the needs of the industry, and our risk team have become experts in using the solution to build new risk models very quickly. Whenever the bank needs to meet a new requirement, we’re confident that we can deliver it, fast.”

Over the next few years, the financial services sector will face many major regulatory changes. For example, new Interest Rate Risk in the Banking Book (IRRBB) and Fundamental Review of the Trading Book (FRTB) regulations will require significant changes in the way interest rate exposure and regulatory capital are calculated.

As it began planning its response to these regulatory changes, Banco do Brasil realized that the compliance exercise also presented an opportunity to create a standardized risk architecture for its banking, buy-side and pension businesses. To handle the large quantities of data required by this new approach, the bank decided to upgrade its IBM Financial Risk solutions to take advantage of new big data analytics capabilities.

Transformation story

Building a platform for the future

Banco do Brasil’s platform now includes the latest generation of IBM Algo One® solutions for market risk, counterparty credit risk, asset and liability management and FRTB for the bank, as well as buy-side market risk for the asset management and pension businesses.

By upgrading to the latest version of Algo One, Banco do Brasil is laying the foundation to scale up its financial risk analytics processes to handle ever larger amounts of data. The platform’s new big data architecture will enable risk teams to run high-speed simulations involving millions of transactions, without needing to prebuild complex aggregates. Moreover, using a horizontally scalable data lake for data storage and processing instead of relying on expensive relational databases will help to keep costs under control.

“We are planning to move all our reporting over to the new IBM Algo® Workspace Analyzer tool,” says Iram Souza. “In fact, we will be using it to publish risk metrics not only for our internal stakeholders but for external clients as well.”

The bank has already planned out a series of implementations for the next three years. On the technical side, it will complete its upgrade project, implement the new big data architecture, and add new dynamic simulation capabilities for risk calculations and stress tests. On the regulatory side, it will prioritize IRRBB and Net Stable Funding Ratio (NSFR) projects, before moving on to its FRTB implementation.

Meanwhile, the bank is also investigating how it can use IBM Watson® technologies to introduce artificial intelligence (AI) into its risk analytics processes. For example, it is piloting a project to use AI to automatically generate risk scenarios for stress testing—which could potentially help to identify important combinations of risk factors that human analysts might not have considered.

Results story

Rapid return on investment

As it looks forward to harnessing the new capabilities that its next-generation risk analytics platform will offer, Banco do Brasil’s risk management team continues to benefit from the rapid development cycles that its existing platform already provides.

“The biggest advantage of the IBM Financial Risk solution is that we can implement market risk models fast to meet the needs of our internal clients,” says Iram Souza. “When new requirements arise, we can get a new model into production within 48 hours.”

Banco do Brasil has already built more than 400 models, many of which can be used by both the bank and its asset management company.

“Using the same solution for risk analytics across different areas of the organization gives us important synergies,” says Iram Souza. “When we have a new instrument that is used by both the bank and the asset management business, we only need to create a single model—saving time, reducing maintenance work, and increasing consistency.”

This ability to share and re-use modeling assets will become even more important in the future, as Banco do Brasil moves towards an even more unified approach to risk analytics.

“With IBM Financial Risk solutions providing a single platform for IRRBB and FRTB, we will have a profound integration between finance and risk metrics for asset and liability management,” says Iram Souza.

He concludes: “Over the past 20 years, our close relationship with the IBM Financial Risk team has made a major contribution to our ability to act as industry leaders in risk management and corporate governance. Our IBM Financial Risk solutions provide an excellent balance between cost and benefit—there is a significant return on investment because we can be so agile at implementing the risk measures that the bank needs.”

Banco do Brasil

Founded in 1808, Banco do Brasil is one of Brazil’s largest financial services companies, with interests in banking, insurance, asset management, capital markets and payments, as well as an international franchise of banks around the world. Within Brazil, it has market share of 23.1 percent in assets under management, 19.1 percent in loan portfolio, and 20.3 percent in deposits. It has more than 66 million customers and nearly 100,000 employees.

Solution components

• Financial Risk Withdrawn

Take the Next Step

IBM is working with organizations across the financial services industry to use IBM Cloud, cognitive, big data, RegTech and blockchain technology to address their business challenges. Watson Financial Services merges the cognitive capabilities of Watson and the expertise of Promontory Financial Group to help risk and compliance professionals make better informed decisions to manage risk and compliance processes. These processes range from regulatory change management to specific compliance processes, such as anti-money laundering, know your customer, conduct surveillance and stress testing.

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