Rick Steinberg provides a lucid review of the financial crisis and the role that financial regulators and overseers played in his recent webinar titled “The Great Financial System Meltdown”. If you were fortunate enough to attend, you heard Rick describe how we landed in this difficult financial crisis and what he expects in terms of regulations and outcomes for 2009 and beyond. One point that I found very interesting was that we need to recognize that the “100 year flood” happens every 20-30 years. He pointed to the S&L fiasco, junk bond debacle, dot-com bubble, today’s financial system meltdown and liquidity, credit markets seizure – all of which happened since Bill Buckner couldn’t field a ground ball in the ’86 World Series.
The need for better transparency at the board level and a top-down driven, risk aware culture has never been more apparent. Fortunately, as Gordon Burnes points out in a recent blog entry, the Obama administration is proposing financial services regulation which includes “principles on openness and transparency”. Chief risk officers are now more than ever getting a seat at the board table and executives are demanding visibility into risk exposure and its potential impact on operating performance.
Of course technology plays a critical role in an organization’s ability to implement an effective enterprise management framework that provides transparency and drives accountability. With enterprise risk management dashboards providing decision support at all levels within the organization, risk professionals and executives gain visibility into how their business is operating and a decision support system that can be used to improve operational performance and execution.
Technology can also drive culture. Too often in 2008 we heard of organizations that were made aware of risky portfolios and exposure, but did nothing to heed the warnings. It all begins with senior management, but technology can help promote a risk aware culture through integrated training and certifications that build awareness, creates accountability and pushes policies and processes into daily activities.
One can’t help but wonder what would have been the result had financial institutions involved in the sub-prime crisis been practicing strong risk management and fostering a risk aware corporate culture.