Word: firms
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...Bowes decided to analyze risk more systematically, the company listed 16 categories of risk--from supply chain to reputation--and assigned a senior executive to be in charge of each one in an attempt to drive the new ethos into the corporate culture. What was important was that the firm also made a deliberate decision that risk was not something that could be reduced to a number. "We have a much more holistic discussion about a business and why we have it," says vice president and treasurer Helen Shan. "It becomes strategic, instead of simply, Do we get insurance...
...share, and not risk mitigation, the forward push continued. When managers did articulate problems, they were often ignored. In August 2007, one of Merrill Lynch's top risk managers warned his boss that a decision to wager $3 billion on indexes of mortgage-related securities was too risky. The firm made the bet anyway; three months later, the risk manager left. "The psychology during a boom makes it very difficult to come up with large stress scenarios and get management to consider them to be credible," says Ed Hida, a partner in Deloitte & Touche's risk- and capital-management practice...
...products, including CDOs and interest-rate derivatives, CEO Ed Clark was pilloried for leaving profit on the table. Clark, who has a Ph.D. in economics from Harvard, made the decision because he couldn't comprehend, to his satisfaction, the credit and equity products that were being traded at the firm. So he decided to quit the business--a move that kept his bank in the black while others suffered. "I'm an old-school banker," he later said. "I don't think you should do something you don't understand, hoping there's somebody at the bottom of the organization...
That is exactly the sort of top-down control financial firms now say they want. Citigroup CEO Vikram Pandit vows to be a "hands-on participant" in risk management. In August, UBS chairman Peter Kurer broke the firm into three separate units partly because the old structure, he said, encouraged "the blurring of the true risk-reward profile of individual businesses." In July, the Institute of International Finance, which counts large banks and insurance companies among its members, put out a 174-page report detailing best practices in the wake of the financial crisis. Among them: developing a corporate culture...
...remembered. Four exchanges, with encouragement from the Securities and Exchange Commission and the Federal Reserve Bank of New York, have volunteered to create a clearinghouse for the hazily understood concentrations of risk known as credit-default swaps. Investors are also taking more responsibility. Over the past month, the analytics firm RiskMetrics has seen a rush of pension funds, hedge funds and asset managers signing up for tools to analyze counterparty risk. "The only folks who used to ask us about those were banks," says risk-management-practice head Gregg Berman...