In Observations on Risk Management Practices during the Recent Market Turbulence, the Senior Supervisors Group, which consists of US, UK, Swiss, French and German regulators, took a look at a number of global financial services institutions during the period of recent market turmoil. These institutions included the largest financial services firms in the world. The regulators zeroed in on exposure to the securitization of US subprime mortgage-related credit.
According to the report introduction penned by William Rutledge, Chairman of the NY Fed, " firms that avoided such problems [losses associated with such exposure] demonstrated a comprehensive approach to viewing firm-wide exposures and risk, sharing quantitative and qualitative information more effectively across the firm and engaging in more effective dialog across the management team."
What’s interesting here is that the regulators called out the ability of senior management to share risk information across silos, to discuss how exposures and risks all came together at the top of the business. This is certainly about risk culture, but it’s also about having access to that information so that it can be shared in the first place, which is really a systems problem. Regardless, it’s pretty clear that the days of siloed risk management are going to come to an end. Senior management must look at risk across the business in a more holistic way. It would be overly simplistic to say that Bear Stearns collapsed because of siloed risk management, but for anyone who’s ever read Memos From the Chairman, it’s hard to imagine this happening to a firm once run by Ace Greenberg, who championed a culture that had little tolerance for festering problems.