Did the Fed Contribute to Poor Risk Management by Banks?
CFO’s article on risk management brought up a fascinating point about how the Federal Reserve policies contributed to poor risk management in banks during the subprime mess. CFO makes a shaky link to Alan Greenspan’s role. Banks had been shedding, instead of managing, risk for years by passing it on to investors. They claim that Greenspan “praised” this dispersion of risk since it in fact bolstered the “safety and soundness” of the industry.
I think it did and that Greenspan was right. An important point in my thinking is that the banks that failed did NOT manage risk on the risk they retained. And the CEOs of those banks did not emphasize risk management and involvement of top executives in that concept.
I’m the first to point the finger at government intervention as a culprit but this is simply passing the buck.
How do you feel about the subprime mess? Has it affected you? In what way? Are you upset with the banks for their poor risk management? What is the responsibility of the individual investor in this debacle?
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