Confessions of a risk manager
Article Type: Abstracts From: Strategic Direction, Volume 25, Issue 1
The Economist9 August 2008, Vol. 388 No. 8592, Start page: 72, No. of pages: 2
Purpose – features one risk manager’s experience of the credit crisis. Design/methodology/approach – records the confessions of a risk manager, tasked with approving credit requests and transactions submitted to him by bankers and traders in the front-line and for monitoring and reporting the level of risk across the bank’s portfolio. Reports on some of the warning signs, indicating an impending credit crunch, that he and his team missed; looks at the risk strategy that they deployed and examines how they allowed a situation to develop where they had built up a large trading position. Puts forward how their risk management came apart; highlights how the two assumptions on which their risk management was based cost the company dearly. Looks at how they placed too much faith in the rating agencies judgments and describes how psychology, and immense pressure from traders, played a big part in approving transactions. Outlines how a major weakness was the focus on getting marginal transactions approved, rather than on identifying possible risks. Identifies some of the lessons that may have been taken on board by risk managers and the industry. Originality/value – spells out the difficult job that risk managers had in turning down transactions being pushed by traders.ISSN:0013-0613Reference: 37AT001
Keywords: Banking, Credit control, Financial management,Investments, Risk management
