Kamakura Corporation announced Thursday that it has dramatically 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. The enhanced transfer pricing capabilities in Kamakura Risk Manager Version 7.0 allow major 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. KRM Version 7.0 provides 8 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.
"Bloomberg reported in a story on October 7 that Bear Stearns was operating with near zero visibility of its risk positions, both in terms of the amount of risk and its sources,” said Warren Sherman, Kamakura president and chief operating officer. "Similarly, Merrill Lynch and UBS both admitted that their Boards did not have appropriate visibility on the home price risk of those institutions, allowing the exposure to grow too large and making appropriate hedging a shot in the dark. Modern transfer pricing technology like that embedded in KRM version 7.0 eliminates the fog around risk positions to give perfect visibility to the total risk of the institution, both in aggregate and at the transaction level."
“In 1973, Wm. Mack Terry and his colleagues at the Bank of America in San Francisco introduced the world’s first matched maturity transfer pricing system,” added Dr. Donald R. van Deventer, Kamakura chairman and chief executive officer. “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. This capability is available now, and Kamakura has been gratified that so many institutions have reached out to Kamakura for best practice risk analytics during the current crisis.”