Global Supervisors : Risk Management Lessons from the Global Banking Crisis of 2008

Discussion in 'Wall St. News' started by ASusilovic, Oct 21, 2009.

  1. Mr. Mario Draghi, Chairman
    Financial Stability Board
    Bank for International Settlements
    Centralbahnplatz 2
    CH-4002 Basel

    Dear Mr. Draghi:
    On behalf of the Senior Supervisors Group (SSG), I am writing to convey Risk
    Management Lessons from the Global Banking Crisis of 2008, a report that reviews in depth
    the funding and liquidity issues central to the recent crisis and explores critical areas of
    risk management practice warranting improvement across the financial services industry.
    This report is a companion and successor to our first report, Observations on Risk
    Management Practices during the Recent Market Turbulence, issued in March 2008.
    The events of 2008 clearly exposed the vulnerabilities of financial firms whose business
    models depended too heavily on uninterrupted access to secured financing markets, often
    at excessively high leverage levels. This dependence reflected an unrealistic assessment of
    liquidity risks of concentrated positions and an inability to anticipate a dramatic reduction
    in the availability of secured funding to support these assets under stressed conditions.
    A major failure that contributed to the development of these business models was weakness
    in funds transfer pricing practices for assets that were illiquid or significantly concentrated
    when the firm took on the exposure. Some improvements have been made, but instituting
    further necessary improvements in liquidity risk management must remain a key priority
    for financial services firms.
    In the attached report, we identify various other deficiencies in the governance, firm
    management, risk management, and internal control programs that contributed to, or were
    revealed by, the financial and banking crisis of 2008. Our report highlights a number of
    areas of weakness that require further work by the firms to address, including the following
    (in addition to the liquidity risk management issues described above):
    • the failure of some boards of directors and senior managers to establish, measure,
    and adhere to a level of risk acceptable to the firm;
    • compensation programs that conflicted with the control objectives of the firm;
    • inadequate and often fragmented technological infrastructures that hindered
    effective risk identification and measurement; and
    • institutional arrangements that conferred status and influence on risk takers
    at the expense of independent risk managers and control personnel.
    In highlighting the areas where firms must make further progress, we seek to raise
    awareness of the continuing weaknesses in risk management practice across the industry and
    to evaluate critically firms’ efforts to address these weaknesses. Moreover, the observations
    in this report support the ongoing efforts of supervisory agencies to define policies that
    enhance financial institution resilience and promote global financial stability.
  2. Lethn


    This is wrong, he's assuming it's over.