1.     Could you please describe your career, especially in risk management?

 I started on the credit risk side and more specifically on country risk matters and the frontrunner of Basel II. The essence was to being prepared to a new world, which was more dynamic and as a consequence more uncertain. This was a time of growth and expansion into new territories and in some cases uncharteredterritories. One principle focus was to liaise with the business to support them where necessary to be successful in closing the right project. This meant that we had to look across the countries borders as globalization and financial intermediation were getting canvassed. Hence, cross border risk and country risk became more important especially understanding what it was about and which risk classified as such.

It is an obvious statement but risk is an opportunity and foremost is not static (even though the triggers of an event are).

This meant a change in thinking from deal based to portfolio-based to strategic. And consequently, changing your infrastructure and policies. I started to work on building a country-risk/sovereign rating system and later on a social ethical risk rating system. The challenge here was to build a tool that reflected the DNA of the corporate and a system that was reliable in its forecast. This was an exiting period because it demanded a change in mindset as well.

The model is just a tool.  To get a good understanding of the impact of the different types of risks I developed a scenario model and some stress test to understand the economics behind the risk
triggers. This helped me to predict crisis events.

The Russian, Turkey and Argentinean crisis meant stronger concerted action. I was involved in the discussions with the IMF and FED to develop a crisis prevention and resolution framework. In a joint effort led by the Internatinal Institurte of Finance a framework was developed, which to date is still in place. Strategic alliances were built with the Paris Club.

During the consultation rounds of the Basel II recommendations it became clear that there was no clear view on sovereign risk. More importantly, the consequences of the proposed recommendations would limit business to emerging markets. This during a time where international trade was growing double digit and globalization was at its height. This led us to develop a roadmap for emerging economies on how to deal with Basel II. This was the spark to develop a risk advisory group on enterprise wide risk management.

Corporate Social Responsibility was put on the agenda. This required a new turn in our mindset as we needed to develop a risk framework in which our policies were embedded. This led to the development of a social ethical risk rating, which in my humble opinion is unique!

2. You have been described by your peers as a strategic thinker. What are the major trends in the International trade and capital flows which will play role in the coming years from your point of view?

1. South-south trade will become more important and within the south-south part intra-regional trade will grow. Hence, traditional political risk elements will arise. Also the problem will arise that more trade will be done , due strategic resources, with conflict countries. This will put more emphasis on the trade related risk component of non-payment. A relate disuse here is that many of the countries do not live up to international standards yet so documentation risk will also rise.

Connected to this is security risk. The obvious is still terrorism but also securing scarce resources will bring in some new features in our risk mind set. 

We have witnessed this in the last years with the China’s soft policy towards Africa.

2. Massive currency devaluation risk has been away for some years but with growing pressure on China and India to open up their regimes I would not exclude this risk to arise again. Especially for the satellite countries around these two centers.

When countries stop  protecting their currency it will be devaluated before it will start depreciating again. We saw it in the past with Rub and thai Bath. The more than 10% in a short timespan
fall in the exchange rate is harmful for business especially in trade finance. 
We are moving to countries (Africa) which are not fit yet to be integrated and the will become vulnerable because they are exposed.  

3. Climate changes

Physical damage when mines are polluted, thunderstone which blow away nuclear factories.

The Number of floods in the last 5 years are much higher than statistically possible.

The issue is to understand what type of risk is it? Whether this is a Political or credit?

4. institutional risk and sovereign risk is rising again. The critical issue is when will markets accept that US has to be downgraded? When will the market be ready to accept that triple AAA ratings are not risk free! The Southern Europe crisis may be a wake up call, but as long as policymakers are hiding their inability to cope in orderly way with the issue and let markets do their job. They only make matters worse. As a consequence institutional risk will arise
where the traditional safety nets like the IMF will not be in a strong position
to step in.

Example: couple of years ago we struggled with the principle what is the sub-sovereign. If the State of Florida defaults who will step in?

In Europe. Who is the sovereign? ECB has the emergency fund under their control. The ECB is in essence now is the sovereign.

All the member states send money to ECB. Who is the sovereign Greece or Europe or ECB. Everybody who has claims on Greece comes to the ECB

Some institutions are becoming quasi sovereigns. Will ECB default if members state stop payments? It will change the landscape of risk and understanding how to deal with the risk.

5 Connected to institutional risk is Policy risk:  All defined policies without defined SMART objectives will not fly but create more havoc and uncertainty and consequently undermine an orderly resolution. This may sound bold but we all have witnessed this recently. There
is no one fits it all solution and also no silver bullet. We have also witnessed that a principles based crisis management package is more effective than a rules-based package. It is important that market participants are involved in drawing policies and support the implementation of these. This will create an environment of timely and adequate response to
short-circuit huge losses.  I need only to mention the Greece case. Do we really think that the EC package will work out positively? No, look how much value already has evaporated due to poor PR and defined policies.

Markets are too much controlled or curtailed by a lot of policies and new rules, so business become penalized. They are introducing mechanisms, which are not working. New institutions, which are created to control banks, we don’t know how they will work in the next crisis or we know only theoretically.

There will be an implosion in China and India. These countries cannot be new World’s locomotives. The domestic problems both socially and economically are so huge so that they can’t continue with the same growth. The only country, which is doing a good job, is Brasil

So we will have protectionism and regional powers will assert power, so we might come back to the 30th of previous millennium.

Coming back to the main source of my concern is S-S trade. We need to address issue of  Export credit agencies. They all look to protect theirs own currencies. So if you say that there are strategic countries in World Trade but they don’t have yet the level of guarantees, then you have
to extend the insurance coverage from NL to Bangladesh, thereby creating international coordination. By doing this we are securing and mitigating political part.

3. What are the main principles of Sustainable development and how does it relate to risk
management?

Corporate Social Responsibility has to be in the DNA of a company. So it has to be embedded in your risk philosophy and canvassed in your risk charter. All transactions should be screened against a vector of sustainability principles you as a company stand for. These criteria are a direct reflection of the policies you have defined in this respect. Stick to this as it will build a
reputation and also transparency with respect to your decision making process. This will be highly valued by the biusiness lines within your organization and also civil society. This is essence will mitigate reputational risk and protect your brand.

Also enhance your governance. So if you have policies you have to monitor them and assess transactions. You have to build number of filters . 1. Compliance to your policies, approval process criteria, KYC policies whether your client will comply to your CSR(corporate social responsible) principles. You have to get a better understanding of the value and business chains.

4. What are the main challenges banks face with NGO organizations and how risk management approach
can solve it?

 NGO are the voice of the people. By allowing them to look at your kitchen they get the feel how you assess the risk. By making them partner of your Risk framework they will understand more about your decision making process.

We asked couple of journalists to sit down with us on Credit recommendation process. Surprisingly they came with the same assessment as the bank.

So it more or less is creating strategic partners. Include them in the policy. Ask them,. You have to be selective, work only with 5-6 of major NGO organizations, not with the bullies and with the
sharks.

Not many companies  dare to publish policies that people understand. You don’t have to disclose your criterias, but you can open up transactions. We have to follow some post mortem analysis of some multi national banks. It is important because you will start understand which factors
derail projects.

Why the NGO’s  are so important? They see effects of your policies. You have to involve them in your impact analysis.

Is branding or Reputation risk very important? I think yes, but it is not included in the Basel framework, they still look as if in the banking sector all boils out to Credit.

5. You have been an Advisor to the Basle Committee on Sovereign and Country Risk. What will be the impact of Basel III and how will it change the landscape in the financial world
in the years to come?

I have worked closely with my colleagues on identifying white spots in the Basel proposals with regard to country and sovereign risk. In this process we have worked with in close consultation with other institutes to define a set of criteria which in our opinion would create a level playing field .

Basel 3 will be a next step to create more awareness both with policymakers and practitioners how important it is to have a robust and sound risk management framework. And how important it is to disclose as much information as possible for swift, prompt and corrective action in case of need and emergency. It also will help to close the gap between supervisors and financial institutions both with respect to the jargon used as to having a clear understanding of the
systems and how the different systems and models relate. It will create a new breed of risk managers and also a new dictionary of financial terms. But at least we will speak one language.

But Basel 3 will not prevent any future crisis unfortunately. It is again a post mortem action. I am concerned that as long as the Basel committee doesnot define benchmark ratings there always will remain arbitrage opportunities. And as long there is a choice between Standardized and Advanced there will be arbitrage opportunities.

So in essence not much will change over the long haul. 

6. How the balance of economical power is shifting at the moment and what will be the outcome of this process? Better world or more complicated un-ruled world?

We see the gravity is shifting to the East. China and India are complimentary to each other. These countries fit with the Ricardian model. They are too big too fail. Economically is much to be gained. 

If you want to become the economical power you should become a military power. China is annexing countries in Africa, buying land. They can’t become the military power because they will have to shift resources. The Military powers will remain with USA and Russia. I think Russia will protect Asian countries to protect their economic wealth. Their resources are so important to them, so they will be the  Exporters of military power. The US can not keep with their military capacity

Euro has nothing – we are competing with each other. We don’t have much specialization within the EU.

LatAm has resources and skills but they are too small compared with Asia.

This creates un-equilibrium in the world in the coming years.

India and China have their satellites and it creates tension between them.

7. Which is the most important opportunity for risk specialists in the coming years?

2 areas.

1. Advisory role . In the upcoming markets –we can advise them on the mistakes we made, create a level field of risk measures and policies. On the control side we need to build strong
   systems.

2. Strategically setting of Risk in the organizations. Risk is the backbone in every org. Risk has to work strongly with business and embed this in the Growth strategic of organizations and to lower risk exposure. We have to distance ourselves from quantitative and to work more on qualification of risk. People have to work on portfolio picture so that we won’t have pockets of specific types of risk.

Example: I accept risk of 10% of my assets. More Portfolio type of approach is important. 

8. How can you verify that a specific risk management strategy is working?

Stress test

Use more frequent stress test and back test – every quarter. You have to be more dynamic and create an opt-out mechanism. If you see that a project deviates from the initial assessment – you have to take actions. It is a new type of thinking, so if deviation start early in the process you can make adjustments

9. What are the main lessons from the current crisis from your point of view?

1.Policy failures – reluctance to accept that matured countries made a mess of this.

2.Does not matter how much we talk, International coordination does not exist

3.We do not understand the complexity of the markets. We did not implement the lessons from the past. We could have make distinction what is market driven. 

4.Response time is too long

5.We don’t have instruments – is it a lack of good leadership.

US left the bankers in place. They told them if you don’t deliver you go to prison. Here in Europe and NL specifically we put policy makers in Banks. How do you deal in the crisis time?

Just imagine that an aircraft pilot was given  a power to navigate a Nuclear submarine in time of crisis.

10. How the GlobalRisk Community can contribute to the process and how can we improve?

1. Organize kind of evening with a speaker. Discuss the items, follow up with the paper
2. Present the ideas to the group. – crystallize ideas, come back again.
3. Submit our proposals to policy makers looking for some agendas.
4. I sent the Questionnaire- road map. (Basel II).

IMF is struggling with financial  stability.

If we write, for example, a 1-2 pager on climate change risk and how it can impact portfolio

We can send it to World bank and IMF they have meetings in Europe – to get exposure.

Dutch Gov – is going to discuss the Trade Finance and Export Credit. If we have a view on that , submit to the Minister