HSBC has revealed that it has delivered a new counterparty credit risk (CCR) and derivative valuation adjustment (XVA) engine powered by Google Cloud.

The banking giant said that the rollout includes an in-house built analytics library NOLA 2.0.

NOLA 2.0 uses an Apache Beam open-source pipeline running at scale on Google Cloud’s Dataflow technology.

The bank said the cloud-native risk management solution boosts calculation speeds by 10 times by combining Graph Theory from Mathematics and Dataflow Elastic compute from Google Cloud.

Counterparty credit risk (CCR) and derivative valuation adjustment (XVA) calculations are among the most computationally intensive and complex calculations in any bank.

They require extreme compute capacity and billions of daily calculations that are critical to understanding, measuring, and controlling a financial institution’s counterparty exposure.

The CCR/XVA calculations are used to capture credit, funding, and capital costs for derivatives and form a core part of trading, risk management, accounting, and regulatory requirements.

Following the financial crisis, HSBC scaled up its CCR management capabilities using on-premises IT systems. While this setup served the bank well for over 10 years, it was not capable of meeting future regulatory and business demands.

In January 2021, the bank began work to enhance its Business and CCR management capabilities to deliver a faster, more efficient, and more cost-effective platform while meeting the new regulatory requirements introduced by Basel III.

Commenting on the rollout, Faisal Yousaf, global head of treasury risk management & risk analytics at HSBC said: “We knew we needed to make changes to our internal processes, and we wanted to build something using cutting-edge, cloud-first technology.”

“We wanted to be ambitious, to build a solution in a cost-effective manner that could adapt very quickly and respond to multiple regulations in the various jurisdictions we operate in.”

Increases in compute speed and launch velocity are also expected to provide long-term benefits for HSBC and its customers, Yousaf said.

“Now we will have the ability to look at different stress scenarios that could occur within the world, like the impact of climate change or of inflation interest rates."

“We can run a whole host of scenarios and ask, how is our portfolio going to change? That allows us to partake in more active hedging, more active risk management, and to position the trading book to take advantage commercially," he added.

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