Risk Management: What Can We Learn from the Sub-Prime Crisis?
CFO magazine covered how poor risk-management techniques, and more importantly, organizational culture and structure, contributed to the subprime problems:
“the inability to properly manage risk, and the failure of stress tests have so far resulted in global bank losses of $265 billion. With a few notable exceptions, bank CFOs seemed willfully ignorant of snowballing risk.”
The worst performers, like Merrill Lynch and Citigroup, shared common problems of a siloed approach to risk and insufficient communication among executive levels in finance, risk and operations. The best performers so far, represented by firms such as Goldman Sachs and Lehman Brothers, give risk a high profile in decision making and have CFOs who manage risk closely.
Many firms allowed the importance of risk management to wane. Contributors were both governmental and corporate leaders. More on this in my next post.
How does your company manage risk? Is it the purview of the CFO? If so, how does the CEO create an environment where all executives contribute to the risk discussion?
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