Nadia LERICOLAiS, OTC Conseil
Claude MARTINI, Zeliade Systems
Jean-Pierre LARDY, JPLC

Despite the challenging environment, the CRIS project (financed by the DGE, Direction Générale des Entreprises), one of the first to qualify in 2008 under the « Pôle de Compétitivité Finance Innovation » to receive grants from the French Ministry of Finance, is finishing its first year with great achievements.

The beta platform is available, and will allow the first stages of commercialisation of the CRIS (Credit Risk Integrated Services) offer in the summer. The governance of the project is fully functioning thanks to the leadership and involvement of Nadia Lericolais and Peggy Dufrene, and the definitive consortium accord is being signed among the participants: Zeliade Systems, OTC Conseil, JPLC, Evry University, Paris 6 University, Dexia CLF and Microsoft France. In the brief review below, we report on the impact of the current crisis on the project, and in particular where its original ideas are reinforced and where it will change course.

• CRIS idea that risks are better managed through an appropriate combination of simple, yet robust and powerful models, rather than narrow sophistication of exotic models is vindicated by the current crisis:
  • Simplicity and robustness are key to the transparency and ultimately the reliability of risk management, while precisely monitoring one factor of risk while missing others is wholly inadequate.
    

• CRIS integrated risk solutions over risk bucketing and out of the box valuation is also being vindicated: separating valuation from risk management eventually leads to entirely misleading results on both fronts:
  • For example; AAA tranches of CDO of ABS ratings methodology and prices were precise to the basis point, yet the gap between them was points and should have been even more.

• The partial reversal of fair value accounting rules will require new and better procedures for model valuation. The CRIS platform will facilitate this process with the rigor and transparency that will be demanded for constant monitoring and audit purposes.
  • CRIS will obviously appeal to active portfolio managers but also owners of assets in « run-off » mode or mandating external asset managers. The CRIS platform will facilitate every aspect of this process from operational, market and counterparty issues and risk reduction to managers’ performance benchmarking.
    

• The crisis is obviously impacting the CRIS agenda for some of the developments that were originally scheduled in second or third phase. The main affected areas are the following:
  • De-emphasis of third generation credit derivatives.
  • Accelerated development of the counterparty risk capabilities for credit valuation adjustment (CVA) and exposure management (or a suggestion: The platform’s ability to recognize Expected Potential Exposure (EPE) profiles).

The crisis is not over and all participants are ready to operate under the associated period of stress. In fact, even if a new down leg in the financial markets occurs, this will be an opportunity as much of a threat for CRIS. Of course, it may impact CRIS resources at a critical time but could also force decisions and send its way serious business.