Interview Questions

1. Experienced bank practitioner, with established credentials in bank asset-liability management and liquidity risk management Interview Questions What would you say are the primary challenges facing the banking sector right now? The main challenge is that there are so many challenges! The ultimate impact of all of them is lower returns, which is something shareholders and boards will needs to accept. The challenges arise in need for more capital, for longer-term hence more expensive funding, for greater cost savings and more fit-for-purpose IT and data management systems. The competitive pressures are enormous, and some banks that find they no longer have a value-added proposition in certain sectors or products will have to withdraw from them, resulting in job losses. In the most extreme cases, whole business models will need to be re-aligned, and this takes time. In the meantime all this drives net P&L down. What is the strategy proposition for banks going forward? It has to be based on two things. Or rather, two things plus a mindset that focuses on risk. First, focus less on Return on Equity and more on genuine value-added, or at the least risk-adjusted ROE. No more loss leaders, no more asset origination that is little more than a funding curve play rather than genuine SVA creation. Second, customer focus. The customer is king and banks must focus in the customer value added. Treat every customer as if they are your only customer. And third, know your risk. No more business activity in areas where the bank does not possess any actual expertise (or at least, expertise that gives it a competitive advantage). Know what risks you are originating, and ensure they are within your tolerance to withstand. This may sound obvious, but one would be surprised how often it is neglected. What is the key risk management asks in banking? Simply this: that risk management can no longer be the purview of the Chief Risk Officer and his/her department. Risk management is the responsibility of everyone in a bank, and this is a cultural shift that must be driven from the top down. The Head of Corporate Banking is as much responsible for risk management as the CRO. This is also a turning back of the clock, to a time when the heads of the business were as concerned with risk as the head of risk was. The cultural shift is a move away from one where P&L is the be-all and end-all of everything for the business line heads. Is the new liquidity regime imposed by Basel III too onerous? No. In a sense they merely enshrine in law principles that would have been commonplace in banking practice in the 1860s or 1960s, but had been forgotten about by 2008. It is sound business practice for banks to hold an adequate stock of genuinely liquid assets, as cover in the event of a funding crisis, and to fund their balance sheet with a sufficiently high share of long-dated liabilities. Given all the instability in the global economic environment, what are your suggestions for investors worried about where to park assets? Given the uncertainties with regard to Euro zone, and continuing lackluster growth and job creation in USA, one has to err on caution. For me the top areas to consider are AAA index-linked sovereign bonds, gold, and long volatility via the VIX contract. And keep at least 25% of your portfolio in cash! Can we fix the financial system or is it broke irreparably and in need of major structural reform? It depends how you are looking at it. From the banking market view, of course it can be fixed it just needs time and capital. From the global economy perspective, we do need to tackle the current imbalances between an importing West and an exporting, high savings ratio East. An alternative to the US dollar as a reserve currency would also help greatly. These issues are much harder to fix. Moorad Choudhry is Treasurer, Corporate Banking Division at The Royal Bank of Scotland. Prior to this he was Head of Treasury at Europe Arab Bank, Head of Treasury at KBC Financial Products and Vice-President, Structured Finance at JPMorgan Chase Bank. He began his career at the London Stock Exchange in 1989. He is Visiting Professor at the Department of Mathematical Sciences, Brunel University, and Visiting Teaching Fellow at the Department of Management, Birkbeck, University of London. He is also Visiting Professor at the Department of Economics, London Metropolitan University and Chair of the University’s Centre for EMEA Banking, Finance and Economics. Moorad is a Fellow of the Chartered Institute for Securities & Investment, a Fellow of the Global Association of Risk Professionals and a Fellow of the Institute of Sales and Marketing Management. He is Managing Editor of the International Journal of Monetary Economics and Finance, and a member of the Editorial Boards of Qualitative Research in Financial Markets, Securities and Investment Review, the Journal of Structured Finance and American Securitization. His publications include Bank Asset and Liability Management and The Principles of Banking. • Recent Articles by Moorad Choudhry: • Jessica Ennis—The Perfect Role Model for Policymakers and Central Bankers Everywhere • Politicians’ Adventures in Wonderland: Back to the Gold Standard? • The Very Basis of Finance Turned on Its Head • The Olympic Effect: Good for the Economy • Why Another Rate Cut by the Bank of England Won't Help • The EU and Public Opinion: No Euro Zone Break-Up • Is the UK Really in Recession? • The Price of Sovereign Risk • Bored of the Euro Zone Contact: Sharifah Sharomsah Publicist Tel +65 6643 8099 skbsharoms@wiley.com 1 Fusionopolis Walk, #07-01 Solaris South Tower Singapore 138628 www.wiley.com

2. Contact: Sharifah Sharomsah, Publicist - skbsharoms@wiley.com, (65) 6643 8099 An essential book for the international banking community as it seeks to re-establish its credibility and put its house in order The Principles of Banking by Moorad Choudhry, John Cummins (Foreword by), Ian Plenderleith (Foreword by) April 2012 / Hardcover / 886 pages ISBN: 978-0-470-82521-1 List price: US$ 90.00 The Principles of Banking An essential guide for bankers and students of finance everywhere, The Principles of Banking reiterates that the primary requirement of banking—sound capital and liquidity risk management—had been forgotten in the years prior to the financial crash. Serving as a policy guide for market practitioners and regulators at all levels, the book explains the keys to success that bankers need to follow during good times in order to be prepared for the bad, providing in-depth guidance and technical analysis of exactly what constitutes good banking practice. Accessible to professionals and students alike, The Principles of Banking covers issues of practical importance to bank practitioners, including asset-liability management, liquidity risk, internal transfer pricing, capital management, stress testing, and more. With an emphasis on viewing business cycles as patterns of stable and stressful market behavior, and rich with worked examples illustrating the key principles of bank asset-liability management, the book is an essential policy guide for today and tomorrow. It also offers readers access to an accompanying website holding policy templates and teaching aids. Illustrates how unsound banking practices that were evident in previous bank crashes were repeated during the creation of the 2007-2008 financial market crisis Provides a template that can be used to create a sound liquidity and asset-liability management framework at any bank An essential resource for the international banking community as it seeks to re-establish its credibility, as well as for students of finance Explains the original principles of banking, including sound lending policy and liquidity management, and why these need to be restated in order to avoid another bank crisis at the time of the next economic recession Covers topics of particular importance to students and academia, many of which are marginally—if ever—addressed in current text books on finance Offers readers access to a companion website featuring invaluable learning and teaching aids Written by a banking practitioner with extensive professional and teaching experience in the field, The Principles of Banking explains exactly how to get back to basics in risk management in the banking community, essential if we are to maintain a sustainable banking industry. "Asset and liability management (ALM) is at the heart of any bank. Among many of its functions, keeping the bank liquid and fixing the ‘‘value’’ of money (for the bank) are key to a bank’s survival and success. Moorad Choudhry has a wealth of experience in this area. ‘The Principles of Banking’ is an invaluable practical guide on how banks can lift their conduct to meet the challenges of the post-crash era." AbhijitPatharkar, Senior Business Manager, Asset and Liability Management, Standard Chartered Bank, Singapore "Moorad Choudhry’s ‘The Principles of Banking’ opens up a portal into the world of sophisticated, dynamic, capital markets-based commercial banking. He gives us the big picture, the precise details and a framework for analyzing the enormous risks facing these firms. The book is an invaluable resource." Jean Helwege, J. Henry Fellers Professor of Business Administration, Department of Finance, University of South Carolina "This book is a ‘‘must read’’ for all senior bankers. There is no writer better than Moorad Choudhry for communicating the vital principles of liquidity, capital and asset-liability management and bank corporate governance." Professor Carol Alexander, Chair of Financial Risk Management, ICMA Centre, University of Reading Chair of the Board, Professional Risk Manager’s International Association Available at all major bookstores, www.amazon.com, Amazon.cn, Amazon,jp, Kinokuniya.com, MPHOnline.com and Wiley.com