Risk management today is in the spotlight, being tested by unprecedented turbulence in the financial markets, including depressed asset prices, reduced liquidity in many markets, and a contraction in the credit markets. The changed marketplace has affected every segment of the financial services industry including banks, insurance companies, and asset management firms. While the confluence of these events has challenged risk management within financial firms, these events have also demonstrated the need for enhanced risk management capabilities and reiterated a basic principle – risk and return are generally correlated and should be evaluated together.
Boards of directors at many institutions may need to continue their efforts to become more actively involved in understanding the risks within the business, approving organizational risk appetite and tolerance, and providing increased oversight over business decision-making and the consideration of relevant risk management issues. Management may require more comprehensive metrics and tools to adequately assess all the risks inherent in the range of complex products. And institutions may need to more fully recognize and effectively manage liquidity risk, which has afflicted the markets for securitized products as well as the broader financial markets.
The sixth edition of Deloitte’s Global Risk Management Survey examined these and other challenges facing global financial institutions. The survey received responses from 111 financial institutions around the world, with aggregate assets of more than $19 trillion.
Since our last report issued in early 2007, the economic environment has changed dramatically. Risk management has always been a core competency of financial institutions, but the extraordinary developments in the financial markets and the broader economy that began in late 2007 have made it an even greater priority. The volatility of the financial markets is placing a premium not only on risk management systems that can consistently assess risk, but also on those that help institutions to identify and monitor emerging risks and react quickly. This implies that institutions may need a more robust, integrated IT infrastructure that can quickly achieve a broad picture of risk across multiple lines of business, portfolios, products, and geographies.
Value at Risk (VaR) has been considered by many to be the industry-accepted methodology for assessing market risk, but its limitations in assessing the risks of extremely rare events, often called “tail risks,” have become apparent. Institutions may need to further supplement the use of VaR with other methodologies such as stress tests. The high degree of correlation across asset classes, risk categories, and geographies revealed in times of stress may need to be factored into portfolio management decisions and enterprise-level capital needs.
Contents
Foreword
Executive summary
Introduction
Risk governance
Enterprise risk management
Basel II
Management of key risks
Credit risk
- Market risk
- Liquidity risk
- Operational risk
- Risk management systems and technology infrastructure
Conclusion
Download
PDF Ebook Global Risk Management Survey: Sixth Edition Risk management in the spotlight
