Method, system and program for credit risk management utilizing credit limits

• US 20050114244A1
• Filed: 09/16/2004
• Published: 05/26/2005
• Est. Priority Date: 09/16/2003
• Status: Active Grant

• Current Assignee: Triple Point Technology (ION Investment Group Ltd.)
• Original Assignee: Triple Point Technology (ION Investment Group Ltd.)
• Inventors: Reid, Dan, Farley, Samuel Jesse, Miri, John, Belshaw, Jarod, Heath, Corey, Silhavy, Mark, Kaisharis, Paul, Hendricks, Colin, Abassi, Misbah, Haynie, Cynthia
• Granted Patent: US 7,571,138 B2
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 10/06 Resources, workflows, human or project management; Enterprise or organisation planning; Enterprise or organisation modelling
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 20/4016 involving fraud or risk level assessment in transaction processing
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: Y10S 707/99943 Generating database or data structure, e.g. via user interface

Abstract

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.

Claims

1. A method comprising:

creating a hierarchical model of legally associated counterparties and associated transactions with an organization, wherein the hierarchical model includes one or more levels containing a plurality of nodes, wherein the plurality of nodes comprises the legally associated counterparties, transactions and master agreements between the legally associated counterparties and an organization; and

calculating financial exposure for the organization at each node of the hierarchical model;

creating credit limit categories, wherein each credit limit category comprises one or more nodes of the plurality of nodes having a common characteristic;

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.

2. A method according to claim 1, wherein creating a hierarchical model further comprises creating a hierarchical model having:

a root node representing a parent counterparty;

one or more counterparty levels in the hierarchical model structured by parent-child relationships between one or more counterparties legally associated with the parent counterparty, each counterparty of the one or more counterparties being represented at a node of the counterparty levels, wherein one or more of the counterparty levels is linked to the root node;

one or more master levels in the hierarchical model representing parent-child relationships between one or more agreements, wherein each node in the one or more master levels represents an agreement with one or more of the one or more counterparties that provides one or more mechanisms for financial aggregation of transactions at a lower level in the hierarchical model, and wherein one of the master levels is linked to one of the counterparty levels; and

a plurality of leaf nodes, each representing a transaction with the one or more of the one or more counterparties, each leaf node of the plurality of leaf nodes being linked to one or more nodes of the one or more master levels or one or more nodes of the one or more counterparty levels.

3. A method according to claim 1, wherein calculating aggregate financial exposure includes:

calculating transactional financial exposure at each leaf node resulting from each of the one or more transactions;

calculating master-level financial exposure at each node of the one or more master levels of the hierarchical model, wherein master-level financial exposure at a given master-level node is calculated as a function of the financial exposure of nodes at a lower level of the hierarchical model linked to the given master-level node;

calculating counterparty-level financial exposure at each node of the one or more counterparty levels of the hierarchical model, wherein counterparty-level financial exposure at a given counterparty-level node is calculated as a function of the financial exposure of nodes at a lower level of the hierarchical model linked to the given counterparty-level node; and

generating an aggregate financial exposure for the organization based on an aggregation of the counterparty-level financial exposure.

4. A method according to claim 1, wherein a credit limit category is comprised of a counterparty and each of the legally associated counterparties at a lower level in the hierarchical model linked to the counterparty.

5. A method according to claim 1, wherein a credit limit category is comprised of transactions and master agreements relating to a type of transaction.

6. A method according to claim 5, 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.

7. A method according to claim 5, wherein the type of transaction comprises trading physical assets.

8. A method according to claim 5, wherein the type of transaction comprises financial assets.

9. A method according to claim 1, further comprising sending an alert when calculated financial exposure exceeds a credit limit.

10. A method according to claim 1, further comprising calculating available credit for a credit limit category based on a calculated credit limit for the credit limit category and calculated financial exposure for the one or more nodes comprising the credit limit category.

11. An article of manufacture comprising machine-readable 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 legally associated counterparties and associated transactions with an organization, wherein the hierarchical model includes one or more levels containing a plurality of nodes, wherein the plurality of nodes comprises the legally associated counterparties, transactions and master agreements between the legally associated counterparties and an organization; and

calculating financial exposure for the organization at each node of the hierarchical model;

creating credit limit categories, wherein each credit limit category comprises one or more nodes of the plurality of nodes having a common characteristic;

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.

12. An article of manufacture according to claim 11, wherein creating a hierarchical model further comprises creating a hierarchical model having:

a root node representing a parent counterparty;

one or more counterparty levels in the hierarchical model structured by parent-child relationships between one or more counterparties legally associated with the parent counterparty, each counterparty of the one or more counterparties being represented at a node of the counterparty levels, wherein one or more of the counterparty levels is linked to the root node;

one or more master levels in the hierarchical model representing parent-child relationships between one or more agreements, wherein each node in the one or more master levels represents an agreement with one or more of the one or more counterparties that provides one or more mechanisms for financial aggregation of transactions at a lower level in the hierarchical model, and wherein one of the master levels is linked to one of the counterparty levels; and

a plurality of leaf nodes, each representing a transaction with the one or more of the one or more counterparties, each leaf node of the plurality of leaf nodes being linked to one or more nodes of the one or more master levels or one or more nodes of the one or more counterparty levels.

13. An article of manufacture according to claim 11, wherein calculating aggregate financial exposure includes:

calculating transactional financial exposure at each leaf node resulting from each of the one or more transactions;

calculating master-level financial exposure at each node of the one or more master levels of the hierarchical model, wherein master-level financial exposure at a given master-level node is calculated as a function of the financial exposure of nodes at a lower level of the hierarchical model linked to the given master-level node;

calculating counterparty-level financial exposure at each node of the one or more counterparty levels of the hierarchical model, wherein counterparty-level financial exposure at a given counterparty-level node is calculated as a function of the financial exposure of nodes at a lower level of the hierarchical model linked to the given counterparty-level node; and

generating an aggregate financial exposure for the organization based on an aggregation of the counterparty-level financial exposure.

14. An article of manufacture according to claim 11, wherein a credit limit category is comprised of a counterparty and each of the legally associated counterparties at a lower level in the hierarchical model linked to the counterparty.

15. An article of manufacture according to claim 11, wherein a credit limit category is comprised of transactions and master agreements relating to a type of transaction.

16. An article of manufacture according to claim 15, 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.

17. An article of manufacture according to claim 15, wherein the type of transaction comprises trading physical assets.

18. An article of manufacture according to claim 15, wherein the type of transaction comprises financial assets.

19. An article of manufacture according to claim 11, further comprising sending an alert when calculated financial exposure exceeds a credit limit.

20. An article of manufacture according to claim 11, further comprising calculating available credit for a credit limit category based on a calculated credit limit for the credit limit category and calculated financial exposure for the one or more nodes comprising the credit limit category.

21. A system comprising:

means for creating a hierarchical model of legally associated counterparties and associated transactions with an organization, wherein the hierarchical model includes one or more levels containing a plurality of nodes, wherein the plurality of nodes comprises the legally associated counterparties, transactions and master agreements between the legally associated counterparties and an organization; and

means for calculating financial exposure for the organization at each node of the hierarchical model;

means for creating credit limit categories, wherein each credit limit category comprises one or more nodes of the plurality of nodes having a common characteristic;

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.

22. A system according to claim 21, wherein means for creating a hierarchical model further comprises means for creating a hierarchical model having:

a root node representing a parent counterparty;

one or more counterparty levels in the hierarchical model structured by parent-child relationships between one or more counterparties legally associated with the parent counterparty, each counterparty of the one or more counterparties being represented at a node of the counterparty levels, wherein one or more of the counterparty levels is linked to the root node;

one or more master levels in the hierarchical model representing parent-child relationships between one or more agreements, wherein each node in the one or more master levels represents an agreement with one or more of the one or more counterparties that provides one or more mechanisms for financial aggregation of transactions at a lower level in the hierarchical model, and wherein one of the master levels is linked to one of the counterparty levels; and

a plurality of leaf nodes, each representing a transaction with the one or more of the one or more counterparties, each leaf node of the plurality of leaf nodes being linked to one or more nodes of the one or more master levels or one or more nodes of the one or more counterparty levels.

23. A system according to claim 21, wherein calculating aggregate financial exposure includes:

means for calculating transactional financial exposure at each leaf node resulting from each of the one or more transactions;

means for calculating master-level financial exposure at each node of the one or more master levels of the hierarchical model, wherein master-level financial exposure at a given master-level node is calculated as a function of the financial exposure of nodes at a lower level of the hierarchical model linked to the given master-level node;

means for calculating counterparty-level financial exposure at each node of the one or more counterparty levels of the hierarchical model, wherein counterparty-level financial exposure at a given counterparty-level node is calculated as a function of the financial exposure of nodes at a lower level of the hierarchical model linked to the given counterparty-level node; and

means for generating an aggregate financial exposure for the organization based on an aggregation of the counterparty-level financial exposure.

24. A system according to claim 21, wherein a credit limit category is comprised of a counterparty and each of the legally associated counterparties at a lower level in the hierarchical model linked to the counterparty.

25. A system according to claim 21, wherein a credit limit category is comprised of transactions and master agreements relating to a type of transaction.

26. A system according to claim 25, 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.

27. A system according to claim 25, wherein the type of transaction comprises trading physical assets.

28. A system according to claim 25, wherein the type of transaction comprises financial assets.

29. A system according to claim 21, further comprising means for sending an alert when calculated financial exposure exceeds a credit limit.

30. A system according to claim 21, further comprising means for calculating available credit for a credit limit category based on a calculated credit limit for the credit limit category and calculated financial exposure for the one or more nodes comprising the credit limit category.