Inside Wall Street's Culture Of Risk
Investment banks are placing bigger bets than ever and beating the odds -- at least for now

How the markets will respond to such an event "is up in the air," says Leslie Rahl, president and founder of Capital Market Risk Advisors Inc., a New York-based consultancy.  That's because banks are dealing more with unpredictable clients like hedge funds and in less familiar financial products like derivatives of derivatives. They also use any number of risk models whose predictions vary wildly depending on the assumptions. For example, JPMorgan Chase & Co. (JPM ) estimates on page 76 of its annual report that in 2005 its trading portfolios were at risk of losing $88 million on any given day, a pittance compared with its annual profit of $8.5 billion. The figure it cited is called value at risk, or VAR, which describes the total losses across all positions, from pork bellies to Iraqi bonds, that could be sustained in any single day under normal trading conditions. On average, major investment banks report VAR of $56 million.

(June 12, 2006)

Hedge-fund regulation by Bernanke not likely INVESTING MARKETPLACE

by Craig Torres and Scott Lanman

The chairman of the U.S. Federal Reserve, Ben Bernanke, who pledged to continue the policies of his predecessor, is sticking close to Alan Greenspan's opposition to the regulation of hedge funds.

Bernanke said Tuesday at a hedge-fund conference hosted by the Atlanta branch of the Fed that he was skeptical about proposals like a database of fund holdings that would let authorities monitor risk in the broader financial system. Instead, firms that deal with hedge funds are best equipped to do the job because they have the "best incentives."

"It's a very responsible position," said Leslie Rahl, president of Capital Market Risk Advisors, a risk advisory firm in New York. "His observations about potential counterparty exposure being larger than is recognized by individual hedge funds is something that I've been concerned about, and I was glad to see it on his agenda."

How the markets will respond to such an event "is up in the air," says Leslie Rahl, president and founder of Capital Market Risk Advisors Inc., a New York-based consultancy.

(June 12, 2006)