Andrea Balongo

Contagion Risk is the possibility of an adverse event spreading from one entity to another within a network. It is not limited to financial markets but can also affect social dynamics.
@ANDREA BALONGO
#riskmanagement

Reputational Risk is the potential for harm to an individual or organization due to external factors that can negatively impact their public image with various stakeholders.

Legal Risk is the potential for financial loss due to non compliance with laws, regulations or contractual obligations.
#riskmanagement#risk

#HappyEaster

I had decided on my thesis years before enrolling in the MBA program. In 2014 my thesis on the study of the growth of Private Equity and its impact on Kenya (a frontier market), was the why behind that MBA.

By Andrea Balongo.

Amsterdam based Frontclear continues to push the needle through derisking, making it possible for more money to move from Advanced to Frontier Markets.

Post-MBA, through Theodore Partners and Frontclear I participated in the initial work that laid the foundation and framework that made it possible for interbank transactions between the different tiers to take place with relative ease.

The MBA was not only to ask and answer the question but to try move the needle and bring attention to the Risk lens used to determine the 80-20.

It is logical to assign the Advanced Markets with tier one status, Emerging Markets with tier two status and Frontier Markets with tier three status.

Is liquidity in the world economies subject to Pareto's principle? If the same is true of interbank overnight liquidity my MBA wanted to draw parallels (if any) with how Private Equity moves between the tiers of global economies.

During my career, I made a causal observation that tier one banks held 80% of the liquidity in the interbank overnight market.

In 1896 Italian economist Vifredo Pareto observed that 80% of the land in Italy was owned by 20% of the population. Pareto's principle is the ultimate guide to cause and effect.

The interbank overnight rates are fragmented further depending on the size of the Bank, typically a tier one bank would borrow at a lower rate than a tier three bank.

The interbank market is a Treasury function and determines the overnight rate. The overnight rate is the prime interest rate banks lend to or borrow from each other to meet their overnight balance requirements.

All these refences and comparisons are in relative terms. My professional experiences were wholesome through all tiers; with each providing unique perspectives that laid the foundation for my MBA.

To further appreciate my Treasury experience with an analogy from the English Premier Football (Soccer) League; I played for top tier Liverpool, middle of the pack Manchester United and teetering on the brink of elimination, Everton F.C.

During my Treasury career, I had the opportunity to straddle three tiers of Banking. Tier one would bring together a cluster of the largest banks in the country, tier two the middle-table banks and tier three the small-sized banks.

The Dodd-Frank Act would become law in 2010, and its far-reaching effects were felt even on my desk in Nairobi. Now enough on how legislation in Washington D.C. finds its way to the center of my workflow twelve thousand kilometers (circa 7600 miles) away.

The Dodd-Frank Act was tabled before the US congress and sponsored by Legislatures Barney Frank and Chris Dodd proposing a sweeping overhaul of the US financial regulatory system.

The Obama administration would support a bill that hoped to bring most over-the-counter transactions in the Financial World to the fore.

I would think of it like your visit to a grocery store (or any store) where the person behind or in front of you has no idea about the details of your transaction.

Over the counter transactions are private transactions between two parties where no third party has a line of sight on the full details of the transaction.

In late 2008 amid a housing crisis in the United States that had a contagion effect globally, then President-Elect Barack Obama described the interbank market as the deep dark waters of the Financial World, due to the over-the-counter nature of these transactions.

My career in Treasury introduced me to the Interbank market, specifically the interbank overnight market. The interbank market in any country is a well-defined market (so it seems) with quantifiable players, defined rules and outcomes, but therein lies tons of undercurrents.

I believe I have reached the summit of my career (not an ounce of interest in a Banking C-Suite job, a story for another day). The MBA is not going to change my professional path or career trajectory, so why do I want to do it?

Why do I need to do an MBA? I am 13 years removed from my undergraduate studies. I have the requisite professional certifications for my job.

Anyone who has undertaken the rigorous and protracted process of obtaining a degree understands the pressures and possibilities of that pursuit, and can testify that at various points throughout that journey they have asked themselves why?

What is your why? That age old question.

I believe your why is that drive or motivation behind what you do. Knowing your why in every engagement could be the secret to success.

The Interbank Market and the why behind my MBA

Photo credit:A Balongo, Frankfurt 2015

Balongo. A.W. (2014). A Study on the Growth of Private Equity and Its Impact on The Economy of Kenya. (Unpublished Master of Business Administration Thesis). United States International University.