PeopleSoft And Algorithmics Partner On Risk ManagementPeopleSoft And Algorithmics Partner On Risk Management

PeopleSoft Inc. and Algorithmics Inc., a maker of risk-management software, revealed a deal Wednesday to make their products work together to help banks make the transition to Basel II, a recently adopted accord that requires financial institutions to implement a uniform way of measuring different types of risk.

PeopleSoft's financial-management apps handle such functions as financial warehouse, funds-transfer pricing, risk-weighted capital, planning and budgeting, and global consolidations. Algorithmics' Algo Capital manages the measurement and allocation of capital and funds set aside to cover bad loans and other contingencies.

The two systems working together will enable financial institutions to better analyze risk, allocate investment capital, and comply with Basel II regulatory requirements. By doing so they can gain greater visibility into credit risks, decrease capital charges through stress testing (testing investment portfolios against various economic scenarios), and perform computer risk-adjusted capital allocations.

PeopleSoft and Algorithmics will "work on getting their data models to talk," says Jim Gahagan, financial-services industry executive at PeopleSoft. The new data models, to be included in releases of PeopleSoft's and Algorithmics' software early next year, will deliver an "integrated risk-management and profitability solution" for banks, he says.

The goal is to bring risk management and financial management--until now very distinct processes--under the same roof. "By combining risk and financial management, you can optimize the way you look at your portfolio from a risk and return standpoint," Gahagan says.

Basel II, which was adopted this summer by the world's central banks, requires banks to create a single measure, called risk-adjusted return on capital, for their market, credit, and operational risks. Although it only affects a handful of banks, they are in the top tier in terms of assets. Most U.S. banks affected will have a one-year phase-in period to implement Basel II system changes beginning in January 2007.