Introduction

On the eve of 2009, financial observers criticised the lack of risk management and regulator oversight.2009 was then always likely to witness a move to overwrite these failures. Financial Institutions must expect a series of regulatory changes and should be in the initial steps of implementing the processes and models to comply with them. While banks are facing much external pressure to manage risk more robustly, Risk Managers should fully expect pressures from within which will empower their position and give them more influence in affecting business policy.

Key findings

• Regulatory proposals – Regulatory requirements are now more so than ever, the most substantial and fundamental factor driving necessary changes to the banking business. There has been much discourse from many regional and global regulatory bodies highlighting greater supervision.
• The role of the Risk Manager – The inability of the risk manager to effectively communicate reservations in regards to hazardous business strategy, has been cited as a primary cause of the credit crisis. Criticism should instead be directed at the infrastructure of financial companies which curtailed their authority.
• Stress testing – One fundamental theme that has come from all the literature surrounding regulation of the financial services industry is the increased need for stress testing as an effective tool for risk management.
• Remuneration – Incentive packages are part and parcel of a capitalist society, and calls to cut back bonuses are onerous. Instead there should be a restructuring of bonus packages to reward long term performances.
• 2010 and beyond – 2010 will be a year where stress and scenario analysis are maximised to accompany established risk management tools such as VaR. Therefore to ensure that stress testing measures will be meaningful, much effort needs to be directed to ensuring that operational risk, coupled with model risk is managed more precisely.

Conclusion

It had become abundantly clear that 2009 needed to see an atmosphere and culture in financial institutions that was conducive to greater risk management. Furthermore risk needed to become a concern for everyone in the business. Knowledge of an organisation’s risk appetite should not be restricted to just the risk function, and every member of the bank should concern themselves with risk management.

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