For example it is well established that trading market risk and credit risk should be qualified by using a VaR framework. It is important to mention here that the generally accepted practice for valuation adjustments recommends taking the mid-market price of the trade less the sum of the expected credit loss and the going forward administrative cost when valuing a perfectly matched derivative transaction. Accordingly, there is a need to analyze the rationale of the bank's approach to estimating an expected credit loss. Risk Management Infrastructure Methodologies and policies are not sufficient to build an integrated risk management system. A proper infrastructure has to exist in order to complete the process and make the system work.
Infrastructure is composed of several important layers at the top of which are the people concerned.
Such people with great skills and proper training will actually make all the difference by taking into consideration the expected outcome based on their better judgement and correct decisions. The quality of the information and data available are important elements, which enable the management to translate the market statistics into information that is useful for decision making. The ability of the financial institution to integrate risk management operation and technology is a key element that is critical to the successful management of risks. The risk management system is an integral component of the infrastructure of the integrated risk management program. Successful financial institutions should be able to utilize complex technology in their risk management efforts.