Method, system and program for credit risk management utilizing credit limits
Software aggregates and integrates credit exposure and credit data across accounting, trading and operational systems within an organization and generates views of available credit in light of the exposure and credit limits. A comprehensive model of exposure to all counterparties, across all of their divisions and subsidiaries, is assembled, enabling the creation of a hierarchical view of each counterparty that models its real-world parent-child relationships. Credit limits are set across the enterprise, supporting the organization's unique methodology and business process, and on a granular basis, incorporating factors such as external credit ratings, internal credit scores, commodity, geographic region, deal duration, and security instruments. Credit, transactions, and risk are then determined at any level in the hierarchy. After aggregating exposure and credit limit information, the system presents a comprehensive, detailed, real-time, enterprise-wide view of current exposure, collateral requirements and available credit for both a company and its counterparties, making it easy for users to identify trouble spots by counterparty, geography, industry, and credit rating and to manage the company's liquidity.
1. A computer-implemented method comprising:
creating a hierarchical model of a plurality of counterparties and a plurality of associated transactions with an organization, wherein the plurality of counterparties are each a company or firm having a contractual relationship with the organization, and further wherein the plurality of associated transactions are based on contracts between the organization and each company or firm, and further wherein the hierarchical model includes one or more levels containing a plurality of nodes, wherein two or more of the plurality of nodes has associated information related to each corresponding counterparty of the counterparties and the plurality of associated transactions associated with each corresponding counterparty, and further including information indicating agreements between the counterparties and an organization, wherein the hierarchical model further comprises (1) a root node representing a parent counterparty, (2) one or more counterparty levels structured by parent-child relationships between a plurality of counterparties legally associated with the parent counterparty, wherein each counterparty of the plurality of counterparties being represented at a node of the counterparty levels, and wherein one or more of the counterparty levels is linked to the root node, (3) a plurality of master levels representing parent-child relationships between a plurality of agreements, wherein each node in the plurality of master levels represents an agreement with one or more of the plurality of counterparties that provides a plurality of mechanisms for financial aggregation of all contractual transactions at each node of a lower level in the hierarchical model coupled to a given node, and wherein a master level is linked a counterparty level, and (4) a plurality of leaf nodes, each representing a transaction between one or more of the plurality of counterparties and the organization, each leaf node of the plurality of leaf nodes being linked to one or more nodes of the master levels or one or more nodes of the counterparty levels;
storing the hierarchical model in a data storage device;
calculating by a computer financial exposure for the organization based on the plurality of counterparties and a plurality of associated transactions at each node of the hierarchical model;
creating a plurality of credit limit categories, wherein each credit limit category of the plurality of credit limit categories comprises one or more nodes of the plurality of nodes having a common characteristic, wherein a credit limit category of the plurality of credit limit categories groups a plurality of counterparties or a plurality of associated transactions, wherein a credit limit category is comprised of a plurality of counterparties, including a counterparty and each of the counterparties at a lower level in the hierarchical model linked to that counterparty, and further a credit limit category is comprised of transactions and master agreements relating to a type of transaction;
calculating by a computer a credit limit for a credit limit category based on credit limits set for the one or more nodes comprising the credit limit category, and further wherein calculating a credit limit is based on the transactions and master agreements relating to the type of transaction that are each linked to a same counterparty at a higher level in the hierarchical model;
calculating by a computer available credit for a credit limit based on a calculated credit limit for the credit limit category and calculated financial exposure for the credit limit category; and
updating the hierarchical model based on the additional associated transactions with an organization;
recalculating the financial exposure for the organization based on the plurality of counterparties in the additional associated transactions at each node of the hierarchical model; and
sending an alert if the recalculated financial exposure exceeds a calculated credit limit.
2. A method according to claim 1 , wherein the type of transaction comprises trading physical assets.
3. A method according to claim 1 , wherein the type of transaction comprises financial assets.
4. A method according to claim 1 , further comprising sending an alert when calculated financial exposure exceeds a credit limit.
5. An article of manufacture comprising machine-readable storage medium including program logic embedded therein that causes control circuitry in a data processing system to perform the steps of:
creating a hierarchical model of a plurality of counterparties and a plurality of associated transactions with an organization, wherein the plurality of counterparties are each a company or firm having a contractual relationship with the organization, and further wherein the plurality of associated transactions are based on contracts between the organization and each company or firm, and further wherein the hierarchical model includes one or more levels containing a plurality of nodes, wherein two or more of the plurality of nodes has associated information related to each corresponding counterparty of the counterparties and the plurality of associated transactions associated with each corresponding counterparty, and further including information indicating agreements between the counterparties and an organization, wherein the hierarchical model further comprises (1) a root node representing a parent counterparty, (2) one or more counterparty levels structured by parent-child relationships between a plurality of counterparties legally associated with the parent counterparty, wherein each counterparty of the plurality of counterparties being represented at a node of the counterparty levels, and wherein one or more of the counterparty levels is linked to the root node, (3) master levels representing parent-child relationships between a plurality of agreements, wherein each node in the master levels represents an agreement with one or more of the plurality of counterparties that provides a plurality of mechanisms for financial aggregation of all contractual transactions at a lower level in the hierarchical model coupled to a given node, and wherein a master level is linked a counterparty level, and (4) a plurality of leaf nodes, each representing a transaction between one or more of the plurality of counterparties and the organization, each leaf node of the plurality of leaf nodes being linked to one or more nodes of the master levels or one or more nodes of the counterparty levels;
storing the hierarchical model in a data storage device;
calculating financial exposure for the organization based on the plurality of counterparties and plurality of associated transactions at each node of the hierarchical model;
creating a plurality of credit limit categories, wherein each credit limit category of the plurality of credit limit categories comprises one or more nodes of the plurality of nodes having a common characteristic, wherein a credit limit category of the plurality of credit limit categories groups a plurality of counterparties or a plurality of associated transactions, wherein a credit limit category is comprised of a plurality of counterparties, including a counterparty and each of the counterparties at a lower level in the hierarchical model linked to that counterparty, and further a credit limit category is comprised of transactions and master agreements relating to a type of transaction;
calculating a credit limit for a credit limit category based on credit limits set for the one or more nodes comprising the credit limit category, and further wherein calculating a credit limit is based on the transactions and master agreements relating to the type of transaction that are each linked to a same counterparty at a higher level in the hierarchical model;
calculating available credit for a credit limit based on a calculated credit limit for the credit limit category and calculated financial exposure for the credit limit category; and
updating the hierarchical model based on the additional associated transactions with an organization;
recalculating the financial exposure for the organization based on the plurality of counterparties in the additional associated transactions at each node of the hierarchical model; and
sending an alert if the recalculated financial exposure exceeds a calculated credit limit.
6. An article of manufacture according to claim 5 , wherein the type of transaction comprises trading physical assets.
7. An article of manufacture according to claim 5 , wherein the type of transaction comprises financial assets.
8. An article of manufacture according to claim 5 , further comprising sending an alert when calculated financial exposure exceeds a credit limit.
9. A system comprising:
means for creating a hierarchical model of a plurality of counterparties and a plurality of associated transactions with an organization, wherein the plurality of counterparties are each a company or firm having a contractual relationship with the organization, and further wherein the plurality of associated transactions are based on contracts between the organization and each company or firm, and further wherein the hierarchical model includes one or more levels containing a plurality of nodes, wherein two or more of the plurality of nodes has associated information related to each corresponding counterparty of the counterparties and the plurality of associated transactions associated with each corresponding counterparty, and further including information indicating agreements between the counterparties and an organization, wherein the hierarchical model further comprises (1) a root node representing a parent counterparty, (2) one or more counterparty levels structured by parent-child relationships between a plurality of counterparties legally associated with the parent counterparty, wherein each counterparty of the plurality of counterparties being represented at a node of the counterparty levels, and wherein one or more of the counterparty levels is linked to the root node, (3) one or more master levels representing parent-child relationships between a plurality of agreements, wherein each node in the one or more master levels represents an agreement with one or more of the plurality of counterparties that provides one or more mechanisms for financial aggregation of all contractual transactions at a lower level in the hierarchical model coupled to a given node, and wherein a master level is linked a counterparty level, and (4) a plurality of leaf nodes, each representing a transaction between one or more of the plurality of counterparties and the organization, each leaf node of the plurality of leaf nodes being linked to one or more nodes of the master levels or one or more nodes of the counterparty levels;
means for storing the hierarchical model in a data storage device;
means for calculating financial exposure for the organization based on the plurality of counterparties and the plurality of associated transactions at each node of the hierarchical model;
means for creating a plurality of credit limit categories, wherein each credit limit category of the plurality of credit limit categories comprises one or more nodes of the plurality of nodes having a common characteristic, wherein a credit limit category of the plurality of credit limit categories groups a plurality of counterparties or a plurality of associated transactions, wherein a credit limit category is comprised of a plurality of counterparties, including a counterparty and each of the counterparties at a lower level in the hierarchical model linked to that counterparty, and further a credit limit category is comprised of transactions and master agreements relating to a type of transaction;
means for calculating a credit limit for a credit limit category based on credit limits set for the one or more nodes comprising the credit limit category, and further wherein means for calculating a credit limit is based on the transactions and master agreements relating to the type of transaction that are each linked to a same counterparty at a higher level in the hierarchical model;
means for calculating available credit for a credit limit based on a calculated credit limit for the credit limit category and calculated financial exposure for the credit limit category; and
means for updating the hierarchical model based on the additional associated transactions with an organization;
means for recalculating the financial exposure for the organization based on the plurality of counterparties in the additional associated transactions at each node of the hierarchical model; and
sending an alert if the recalculated financial exposure exceeds a calculated credit limit.
10. A system according to claim 9 , wherein the type of transaction comprises trading physical assets.
11. A system according to claim 9 , wherein the type of transaction comprises financial assets.
12. A system according to claim 9 , further comprising means for sending an alert when calculated financial exposure exceeds a credit limit.