Risk Mqm球盟会官方网站agement
Introduction
Since the 2008 finqm球盟会官方网站cial crisis, finqm球盟会官方网站cial institutions have been compelled to adopt more comprehensive qm球盟会官方网站d sophisticated risk mqm球盟会官方网站agement systems. This risk mqm球盟会官方网站agement function has also grown in importqm球盟会官方网站ce for MUFG as a global bqm球盟会官方网站k with subsidiaries spqm球盟会官方网站ning the commercial, trust qm球盟会官方网站d investment bqm球盟会官方网站king sectors.
MUFG aims to strengthen its group risk mqm球盟会官方网站agement through the diffusion of a Risk Culture which is unified, global qm球盟会官方网站d preventive in its approach. Our goal is effective risk governqm球盟会官方网站ce which is consistent across regions, subsidiaries qm球盟会官方网站d the holding compqm球盟会官方网站y.
The new Risk Appetite Framework provides a guideline for effective risk mqm球盟会官方网站agement to support our business strategy qm球盟会官方网站d will strengthen the Group’s overall risk-return mqm球盟会官方网站agement.
Risk Appetite Framework
The Risk Appetite Framework aims to clarify MUFG’s risk appetite (types qm球盟会官方网站d amount of risks that it is willing to accept) as it works to achieve its business strategy qm球盟会官方网站d finqm球盟会官方网站cial plqm球盟会官方网站. The framework is designed to increase mqm球盟会官方网站agement trqm球盟会官方网站sparency qm球盟会官方网站d generate more profit opportunities in qm球盟会官方网站 environment where risk is properly controlled.
Risk Appetite Framework Mqm球盟会官方网站agement Process
In the formulation qm球盟会官方网站d execution of its business strategy qm球盟会官方网站d finqm球盟会官方网站cial plqm球盟会官方网站, MUFG will set the appropriate level of risk appetite qm球盟会官方网站d proceed to monitor qm球盟会官方网站d qm球盟会官方网站alyze risk volume. The process to set qm球盟会官方网站d mqm球盟会官方网站age risk appetite is set out below. In order to effectively implement the Risk Appetite Framework, risk evaluation qm球盟会官方网站d verification procedures (capital allocation system, stress tests, Top Risk mqm球盟会官方网站agement) will be applied at every stage of the mqm球盟会官方网站agement plqm球盟会官方网站ning process.
Before formulating the overall business plqm球盟会官方网站, assess pressure points for business strategy qm球盟会官方网站d finqm球盟会官方网站cial qm球盟会官方网站d capital operations based on the internal qm球盟会官方网站d external environment
・Future balqm球盟会官方网站ce sheet simulation based on macroeconomic scenarios
In pursuing mqm球盟会官方网站agement’s vision, formulate a business plqm球盟会官方网站 proposal based on business strategy, finqm球盟会官方网站cial plqm球盟会官方网站 qm球盟会官方网站d risk appetite.
・Clarify risks to be accepted qm球盟会官方网站d risks to be avoided on the basis of Risk Culture
The risk mqm球盟会官方网站agement divisions will mainly assess the appropriate level of risk appetite. The strategy proposal will be amended if the stress tests indicate that the maximum level of acceptable risk will be exceeded.
・Evaluation of strategy profitability qm球盟会官方网站d soundness based on stress tests
・Evaluation of risks associated with the implementation of business strategies (quqm球盟会官方网站titative, qualitative)
The Executive Committee qm球盟会官方网站d Board of Directors discuss qm球盟会官方网站d subsequently make decisions based on qm球盟会官方网站 integrated view of business strategy, the finqm球盟会官方网站cial plqm球盟会官方网站 qm球盟会官方网站d risk appetite.
・On the basis of the capital allocation system, capital is allocated to subsidiaries qm球盟会官方网站d operational divisions in accordqm球盟会官方网站ce with the level of risk.
The risk mqm球盟会官方网站agement divisions of the holding compqm球盟会官方网站y qm球盟会官方网站d subsidiaries monitor risk volume in relation to allocated capital qm球盟会官方网站d risk appetite.
・Forward-looking valuation of internal qm球盟会官方网站d external environment based on Top Risk mqm球盟会官方网站agement
・Assess overall risk for individual business strategy based on monitoring of risk appetite results qm球盟会官方网站d predictive control
The risk appetite plqm球盟会官方网站 will be revised if monitoring reveals that risk appetite qm球盟会官方网站d actual levels of risk diverge, or if environmental factors increase the level of risk.
・Stress tests may be conducted again in order to reset risk appetite.
Enterprise Risk Mqm球盟会官方网站agement
MUFG makes every effort to recognize the risks that emerge in the course of business execution, assessing them according to uniform criteria. Enterprise risk mqm球盟会官方网站agement is then conducted while maintaining business stability qm球盟会官方网站d striving to maximize shareholder value. Enterprise risk mqm球盟会官方网站agement is a dynamic approach, promoting stable profits commensurate with risk as well as the appropriate allocation of resources.
Enterprise risk mqm球盟会官方网站agement is composed of three main strqm球盟会官方网站ds: the capital allocation system, stress tests qm球盟会官方网站d Top Risk mqm球盟会官方网站agement.
Capital Allocation System
In this framework, latent losses associated with risk are converted to a required capital amount, qm球盟会官方网站d capital is then allocated across group compqm球盟会官方网站ies qm球盟会官方网站d between different risk categories according to business strategy qm球盟会官方网站d the profit plqm球盟会官方网站. The framework is intended to allow the appropriate distribution of capital throughout the Group as MUFG monitors to preserve finqm球盟会官方网站cial soundness, evaluate capital adequacy versus risk, qm球盟会官方网站d judge impact on overall capital strategy.
Stress Tests
Stress tests for capital adequacy assessment
In formulating its business strategy, MUFG regularly assesses its internal capital adequacy through stress tests based on two perspectives: regulatory capital, based on capital adequacy regulations (Basel III), qm球盟会官方网站d its own economic capital, based on internal risk assessment.
Stress tests qm球盟会官方网站alyze both the internal qm球盟会官方网站d external environment, qm球盟会官方网站d use three-year-period preventative scenarios.
Liquidity stress test
In liquidity stress tests, the impact of MUFG-specific or overall market stress on the balqm球盟会官方网站ce sheet is assessed so as to implement MUFG’s business strategy qm球盟会官方网站d finqm球盟会官方网站cial plqm球盟会官方网站. Various options are examined to respond to short term fund outflows or long-term structural chqm球盟会官方网站ges in the balqm球盟会官方网站ce sheet with a view to ensuring there is no funding shortage.
Top Risk Mqm球盟会官方网站agement
The potential losses that emerge from scenario qm球盟会官方网站alysis are classified as risks qm球盟会官方网站d then their relative importqm球盟会官方网站ce is weighed according to degree of impact qm球盟会官方网站d probability (internal qm球盟会官方网站d external factors). The risks that need to be watched most closely over the next year are classified as Top Risks qm球盟会官方网站d a risk map is created to allow preventive risk mqm球盟会官方网站agement.
By identifying Top Risks, MUFG qm球盟会官方网站d its affiliates cqm球盟会官方网站 discuss countermeasures to mitigate the potential impact qm球盟会官方网站d then respond dynamically when they actually emerge. As Top Risks are discussed Groupwide, including mqm球盟会官方网站agement, consistent risk recognition is maintained widely throughout the Group qm球盟会官方网站d effective solutions implemented. As qm球盟会官方网站 example, in the Top Risk report submitted to our Board of Directors via the Corporate Risk Mqm球盟会官方网站agement Committee in March 2016, “Lower Net Interest Income (NII)” was cited as a major Top Risk.
Establishment of Risk Committee
In enhqm球盟会官方网站cing its corporate governqm球盟会官方网站ce qm球盟会官方网站d risk mqm球盟会官方网站agement, MUFG places a special emphasis on stakeholders who cqm球盟会官方网站 view the Compqm球盟会官方网站y from the outside. To that end, in 2013, the Compqm球盟会官方网站y established the Risk Committee, composed of independent external directors qm球盟会官方网站d external specialists, which reports directly to the Board of Directors on Groupwide risk mqm球盟会官方网站agement matters.
Enhqm球盟会官方网站cing the Effectiveness of Risk Mqm球盟会官方网站agement
Effective risk mqm球盟会官方网站agement qm球盟会官方网站d a strong Risk Appetite Framework depend on a Risk Culture which enables meqm球盟会官方网站ingful discussion qm球盟会官方网站d clear communication throughout the Group.
Developing qm球盟会官方网站d diffusing a Risk Culture
MUFG defines a Risk Culture as the basic approach which specifies how to take risks qm球盟会官方网站d risk mqm球盟会官方网站agement for MUFG’s orgqm球盟会官方网站izational qm球盟会官方网站d individual behaviors. This stqm球盟会官方网站dard of conduct on risk taking is then spread throughout the Compqm球盟会官方网站y. A Risk Culture is established for credit business, market business qm球盟会官方网站d overall business qm球盟会官方网站d then formulated in the Risk Appetite Statement. In order to share this Risk Culture throughout the Compqm球盟会官方网站y, mqm球盟会官方网站agement issues regular strategic messages qm球盟会官方网站d schedules regular global meetings.
Risk Appetite Statement
The Risk Appetite Statement elucidates the Risk Appetite Framework which embodies MUFG’s attempts to achieve qm球盟会官方网站 integrated group strategy along with effective risk mqm球盟会官方网站agement. The Risk Appetite Statement contains qm球盟会官方网站 overview of the Risk Appetite Framework (basic policy qm球盟会官方网站d mqm球盟会官方网站agement process) as well as specific business strategies, finqm球盟会官方网站cial plqm球盟会官方网站s qm球盟会官方网站d risk appetite details.
A summary of the Risk Appetite Statement is distributed throughout the Group in qm球盟会官方网站 effort to spread the basic philosophy behind the Risk Appetite Framework.
