Kamakura Corporation, a provider of information risk management solutions, has expanded the ability of the Kamakura Risk Manager enterprise risk system to calculate and display the risks of each transaction on the balance sheets of major financial institutions.
According to the company, the enhanced transfer pricing capabilities in Kamakura Risk Manager version 7.0 allow financial institutions and corporations to parse the incremental risk of each asset and liability on the balance sheet into liquidity risk, credit risk, and interest rate risk components and simulate it forward in a realistic way.
The company claims that the Kamakura Risk Manager (KRM) version 7.0 provides eight different user choices for assigning matched maturity credits and costs of funds so that the board of directors, senior management, internal audit departments, and day to day risk managers have complete ‘drill down’ capability that shows how the total risk of an organization has been created from the transaction level up.
Donald Deventer, chairman and CEO of Kamakura, said: Over the last 35 years, the concept has been increasingly refined and modified to incorporate the best practice calculations embedded in KRM version 7.0. Best practice transfer pricing calculations would have made it clear that neither Bear Stearns nor Lehman Brothers had more than a marginal chance of survival when funding 30 year sub-prime mortgage loans with thirty day borrowings. Board members can and should demand clarity of disclosure on the total risk of an institution and the contribution of each business unit and transaction to total risk.