Giving credit where credit receives its due: An Interview with Marco Suter

RMA Journal, The, March, 2002 by Nicholas Hayes, Beverly Foster

What the future will bring to risk management is undoubtedly further growth of the derivatives markets. It's questionable whether the growth will be as significant as many believe, especially with nonbank counterparties that may shy away from credit risks once they realize the costs of being involved at the wrong time in a cycle. Nevertheless, I believe we shall have more and more possibilities of managing our counterparty risk exposures, first because of further improvements to data and credit risk models, and second because of the growing market. The more liquid traditional credits become, the more credit and market risk control will grow together.

Over time, we also will see changing accounting rules. Traditional credits will, sooner or later, be accounted for under a mark-to-model/market method. I personally believe that the discipline of mark-to-market will introduce price discipline and further enhance liquidity.

Despite the enormous development in modeling techniques and hedging possibilities for risks, I believe that credit officers will continue to be sought-after professionals. Credit control does not become less important simply because by then a larger part of its task constitutes an ax post monitoring of the portfolio rather than ax ante individual transaction approvals. Second, and I do not say this simply to protect my own position, models are subject to significant model risks, especially since credit default risk is so company specific and cannot easily he explained by a few factors. The role of the credit officer going forward will be much more risk focused. The knowledge of our counterparties, especially the larger risks that individually can affect the bank's performance in case of default, will remain as important as ever.

Hayes is director of Global Relations at RMA. Foster is editor of The RMA Journal.

(1.) Trema Management Consulting, a management consulting firm based in Helsinki, Finland, and specializing in strategic finance and risk management, conducts an annual survey on financial risk management information found in annual reports of major European banks.

RELATED ARTICLE: Birth of a Chief Credit Officer

Entire professional career (nearly 28 years) at UBS and its forerunners. Experience includes:

* Commercial banking in the U.S.

* Worked at the Corporate Center as a senior credit analyst.

* Head of European Merchant Banking activities.

* Chief credit officer for Europe; headquartered in London.

* Head of commercial banking relationships at a major branch in Zurich.

* Chief credit officer for UBS Group in 1999

I know what it means to acquire clients and banking business and how frustrating it can be nor to obtain a credit approval or to have conditions imposed that are difficult to negotiate with the client.

Marco Suter