HSBC: Embracing the cloud to lower risk exposure through rapid insight and analysis capabilities
About HSBC
Global bank HSBC has launched a new scenario risk-modelling tool on Google Cloud, transforming speed to decision-making for the risk management and trading teams.
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Contact usSpurred by an enthusiastic commitment to innovation, HSBC has broken new ground with a powerful credit risk solution on Google Cloud, slashing hours from its “what-if” scenario modeling in the fixed-income business and opening the door to a wealth of future possibilities.
Google Cloud results:
- Runs innumerable what if risk simulations simultaneously, 16x faster than before
- Empowers traders to better manage their portfolios on an intraday basis
- Enables trading teams to assess capital requirements needed to cover potential rating downgrades and default risks
- Opens possibilities in other evolving risk areas, including ESG and climate-change risk
Innovation must be nourished for it to flourish
With over 220,000 employees working across 64 countries and territories, covering all major financial markets, and serving more than 40 million customers, HSBC scarcely needs an introduction. What is perhaps less known is the incredible innovation journey the bank has been on: harnessing ideas, funding them, and turning them into impactful projects.
“If the bank finds a good idea, we want to scale it,” says Ajay Yadav, Global Head of Fixed Income for Traded Risk at HSBC. “One such project came from the traded risk function, which involves looking at all the exposure and managing the risk for the bank globally and holistically.”
The project that Yadav is referring to is the development of the bank’s Risk Advisory Tool, which harnesses the power of Google Cloud to run “what-if” scenario modeling sixteen times faster.
“The key motivation for this project was this process that took hours and hours to run and is very manual.”
—Ajay Yadav, Global Head of Fixed Income for Traded Risk, HSBCCumbersome manual process needed a data-science solution
Scenario analysis is bread-and-butter work for HSBC’s traders and risk-management teams. The idea is that traders should be able to run multiple what-ifs on market scenarios that could impact the trading book, so they can put mitigating actions in place if the numbers are not within their risk appetite. As a simple example, the bank may model how a regulatory, inflationary, or employment-rate change in a country could impact the default-risk exposure of certain products.
For a global bank the size of HSBC, these are highly complex, high-volume simulations, generating billions of data points. The existing on-premises hardware solution had limited capacity, causing each scenario to take a member of the risk management team around four hours to run. “The key motivation for this project was this demanding process that took hours and hours to run and is very manual,” Yadav explains. “And the trajectory was only going in one direction. We realized that future requirements were only going to get higher and higher. It's not linear, it's exponential.”
To get the scalability, automation, and computational speed that HSBC needed, it made sense to embrace the possibilities of cloud technologies. In collaboration with Google Cloud and utilizing a suite of Google Cloud products including Cloud Storage, Dataflow, and BigQuery, the team developed the groundbreaking Risk Advisory Tool—with transformational results.
“The speed itself is mind blowing. You should have seen the faces of some of our guys when they saw the numbers come out in 15 minutes.”
—Ajay Yadav, Global Head of Fixed Income for Traded Risk, HSBCAmazing calculation speeds, 16 times faster than before
In the trading world, the faster you can make data-backed decisions, the more optimal your trades are going to be. Now, thanks to the massive computational power of Google Cloud, complex simulations can be run in minutes. This empowers traders and risk managers to use real-time data for intraday risk and capital management, something that was unimaginable before.
Yadav says, “The speed itself is mind-blowing. You should have seen the faces of some of our team when they saw the numbers come out in 15 minutes.”
Google Cloud also gives users the ability to process multiple scenario requests at the same time. Previously, risk managers would be running limited scenarios manually. With the new tool, however, hundreds of users now have the freedom to run as many scenarios as they want, whenever they want, and get the results back in minutes—and not just risk managers, but traders too.
As Yadav explains, the self-service nature of the tool is improving productivity across the fixed income business. “The traders are absolutely thrilled that they can individually look at their own portfolios, try a few things out, and see whether something works or not. That allows for different discussions between risk managers and the trading community, which become much deeper and more insightful than just pure numbers.”
For risk managers, the main value is they can now be much more confident that the portfolio is resilient to many different outcomes. “BigQuery meshes all the hundreds of gigs of data together, which means we can navigate our way through all the numbers in one place and analyze them at a forensic level,” Yadav says. He explains that risk-weighted assets—as an assessment of capital requirements needed to cover potential rating downgrades, credit default, and other risks—“are managed better, quicker, and much more efficiently now.”
Impressively fast production, built on a foundation of trust
Internally, there was some scepticism that a platform as powerful as the Risk Advisory Tool could be built. Yet from paper to production, the bank developed this innovative capability in less than five months.
Yadav chalks up the remarkable pace of the project to collaboration and to “overcoming the fear of failure, which really changes the way you are able to deliver things.” The bank innovated an agile, “can-do” workflow for this capability, which included daily 15-minute standups where everyone had to visually show their output, even if it was just a piece of code. “Just having that visualization completely changed the feedback loop because you could see what was happening in front of you. You’ve got that pace and speed. Every time I came into meetings and saw the progress, I was stunned,” Yadav says.
For Steve Suarez, Global Head of Innovation for Global Functions at HSBC, the velocity of the project was validation of the innovation culture that he and his team has worked so hard to foster. “From an innovation perspective, we want people to experiment. We want people to take calculated risks. That’s the culture and the environment we're trying to instill. I’ve seen people develop confidence through this process, and that's built them up to be bolder, try other things, and expand out.”
Daniel Banin, Project Program Manager in Traded Risk Transformation at HSBC, adds that the close collaboration with the Google Cloud team was critical to the project’s exemplary speed. “It’s such a close working relationship that has developed over many years, and I think that really helped. We have access to the Google Cloud team all the time, so when it comes to delivering quickly, whenever we have a challenge, we’re confident that we always have people to help us break through.” This responsiveness and level of support has helped the bank resolve complex issues on more than one occasion.
“I think the current capability is fantastic. But where it really has potential for a bigger, broader impact is the future.”
—Steve Suarez, Global Head of Innovation, Global Functions, HSBCWhere shall we explore next?
For HSBC, being a data-led organization is integral to unlocking new insights and value for customers and internal teams. Building on this successful Google Cloud collaboration, the focus now is to scale the platform into other areas of evolving risk. “I think the current capability is fantastic,” Suarez says. “But where it really has potential for a bigger, broader impact is the future.”
For its next project, HSBC plans to integrate rating agencies’ Environmental, Social, Governance (ESG) scores as a way to help traders understand the level of susceptibility their books have to climate-change risks. Essentially a numerical measure of how an organization is perceived to be performing on a wide range of environmental, social, and governance topics, ESG scores are a key metric as the market continues to embrace more sustainable forms of investment.
But as Suarez explains, it isn’t just about climate-change risk. “The platform’s early-warning capabilities open it up to different situations that you want to stress test and provide scenarios for, that can impact customers or credit. We can apply the scenario tool to multiple use cases with the aim of getting an earlier warning of risk at a faster pace than competitors.”
Banin anticipates from these scenarios what might follow for the Risk Advisory Tool. He concludes: “What we've delivered so far is really exciting, but in my mind, it's just the beginning of a long journey of continual improvements. We see so many avenues and areas where what we've built so far lays the foundation for a much bigger future. There’s a real appetite to do more. It’s a case of, where should we explore next? The next stage will be using machine learning to be able to analyze data so we’re able to find trends that may not be obvious at first.”
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About HSBC
Global bank HSBC has launched a new scenario risk-modelling tool on Google Cloud, transforming speed to decision-making for the risk management and trading teams.