CMRA in the Press 2008
Miscalculating risk in housing, credit
P&I round table panel: Investors didn’t heed lessons from the tech bubble’s bursting
By Jing Zhou
Institutional investors — when it came to risk management — took their eye off the ball, even after the tech-stock bubble burst in the early part of the decade, according to a risk management round table assembled by Pensions & Investments.
“People felt this was a low-risk environment,” which encouraged them to take high risks, said economic historian and consultant Peter L. Bernstein, founder and president of Peter L. Bernstein Inc., New York., arguing that such complacency led nearly everyone to ignore all the warning signals that the housing market was throwing off.
But for many money managers, getting out of the market too soon was equally fraught with danger. “(If you take) less risk, you can look like an idiot for quite long enough to be put out of business,” said Clifford S. Asness, managing and founding principal of AQR Capital Management LLC, Greenwich, Conn.
Indeed, as Leslie Rahl, president and founder of New York-based Capital Market Risk Advisors Inc., pointed out: “I don’t know how to make money without taking risk, so risk unto itself isn’t bad.”
But given the scale and depth of the market bubble, panelists at the “Picking up the Pieces” round table found it hard to overstate its aftermath. “It certainly is a big mess,” said Bennett W. Golub, vice chairman and head of risk and quantitative analysis of BlackRock Inc., New York.
Mr. Golub attributed the credit market chaos to a variety of reasons, including the increasing complexity of financial products and the dependence by many investors on other investors who specialize in specific products like mortgage-backed securities to determine the appropriate and fair pricing of those products. Thus, “when the shock occurred, we ended up in this sort of massive liquidation,” he explained.
Ms. Rahl added: “The fact that people were not holding to maturity significant pieces of the products they were producing created a different set of incentives and a different set of ways of doing business that have hurt us badly.”
Financial weapons?
Using derivatives to crank up the leverage in portfolios became popular during the real estate bubble’s expansion and P&I’s panel debated whether derivatives were, as Warren Buffett, chief executive officer of conglomerate Berkshire Hathaway Inc., Omaha, Neb., famously labeled, financial weapons of mass destruction.
“I don’t think they are weapons of mass destruction in general,” Ms. Rahl said. “However, it’s like giving a 16-year-old a Porsche. They are not for everyone, and certainly the newer-fangled ones that have been created, especially the credit default swap market, have some characteristics that can be very troublesome if not managed well.”
She added that she advises clients to spend more time on due diligence and risk management on investments that are complex — whether or not they are derivatives.
Without mincing words, Mr. Golub argued that investors need to distinguish between derivatives as risk transference tools and derivatives as obfuscation tools.
Indeed, in Ms. Rahl’s analysis: “There was a lack of awareness of the amount of risk that people were taking” and thus their ability to know when to get out.
Black swan
For the last 15 years, Ms. Rahl has kept a chart on “once-in-a-lifetime crises.” The problem, she said, was that those crises seemed to be occurring every three to four years. After the real estate bubble burst, she crossed out years and put months. But now she’s thinking of crossing out months and putting weeks.
(December 8, 2008)
By Scott Johnson
A new guideline from the CFA Institute would require that asset management firms maintain a sound risk management process in order to claim compliance with the trade group’s code of professional conduct. The addition to the Asset Manager Code is up for comment until January 15.
The proposed principle is brief: 𠇎stablish a risk management process that identifies, monitors, and analyzes the risk position of manager portfolios, including the sources, nature and degree of risk exposure for both individual securities and the total portfolio.” A one-page draft of guidelines allows for a broad range of practices but highlights the risk attached to leverage, liquidity and counterparty relationships, all of which have plagued asset managers in 2007 and 2008.
Risk specialists from about 20 of the industry’s largest asset management firms launched a comprehensive set of best practices earlier this year, as previously reported. The Buy-Side Risk Managers Forum set out more than 30 specific principles for controlling risk across multiple spheres of business.
That group has met several times since launching their February report, available in PDF form her, says Barbara Lucas, a partner at the risk management consulting firm Capital Market Risk Advisors. “I think if you read the principles in light of everything that’s happened, you will see that they nailed it, that they’re good still,” says Lucas.
Lucas believes the industry has become much more cognizant of the importance of risk management, specifically the need to have formal, forward-looking controls in place with multiple metrics for success.
"I don’t get the sense that people expect to go back to normal anytime soon,” she says. "And I don’t get the sense that anybody is putting up temporary measures with the expectation that they’re not going to be necessary going forward.”
(November 14, 2008)
Buyers of Insurer’s Default Swaps Would Recover Most of Their Money
By Serena Ng and Liam Pleven
Banks in the U.S. and abroad are among the biggest winners in the federal government’s revamped $150 billion bailout of American International Group Inc.
Officials also wanted to directly address the parts of AIG’s business that were causing the most financial pain to the company. ȁThe continuing deterioration in value of the CDOs … meant that AIG had to post more and more collateral each day, which was a drain on their resources and potentially a threat to their solvency,” says Leslie Rahl, president of Capital Market Risk Advisors, a risk consultancy in New York.
The New York Fed will provide as much as $30 billion to buy the multisector CDOs, and AIG will contribute $5 billion.
AID also will bear the risk for the first $5 billion of losses among the securities purchased. If the assets increase in value of pay off over time, the Fed and AIG will share the benefits, with most of the upside going to taxpayers.
(November 12, 2008)
By Steve Lohr
Today’s economic turmoil, it seems, is an implicit indictment of the arcane field of financial engineering — a blend of mathematics, statistics and computing. Its practitioners devised not only the exotic, mortgage-backed securities that proved so troublesome, but also the mathematical models of risk that suggested these securities were safe.
“Innovation can be a dangerous game,” said Andrew W. Lo, an economist and professor of finance at the Sloan School of Management of the Massachusetts Institute of Technology. “The technology got ahead of our ability to use it in responsible ways.”
“Complexity, transparency, liquidity and leverage have all played a huge role in this crisis,” said Leslie Rahl, president of Capital Market Risk Advisors, a risk-management consulting firm. “And these are things that are not generally modeled as a quantifiable risk.”
(November 5, 2008)
Cerberus puts $1bn into CIBC
By Henny Sender
Cerberus is investing $1.05bn in the troubled mortgage securities portfolio of CIBC, the latest in a series of halting attempts by investment firms to hunt for bargains in bombed-out sectors of the credit markets.
The CIBC securities which are backed by residential mortgages had an original value of more than $6bn but CIBC has marked them down to $1.18bn.
"When portfolios are priced reasonably, private sector money is available," says Leslie Rahl, founder of consultancy Capital Market Risk Advisors and a board member at the bank.
The investment by Cerberus could help investors put a value on toxic assets. Following Merrill Lynch's sale of a portfolio with a $30bn face value to Lone Star for 22 cents on the dollar, the Cerberus deal suggests a floor of around 20 cents on the dollar. But it is hard to generalise because there was little disclosure on the actual composition of either portfolio.
"There are large pools of capital prepared to invest," says Gerry McCaughey, CIBC chief executive. "But right now, you have asset price deflation. Even if the pricing point is interesting, people think the price may be lower tomorrow. Until you break the deflationary cycle, the money will stay on the sidelines."
Until its deal with Cerberus, CIBC was still tying up large amounts of capital to hold as reserves against that position, Mr McCaughey says. Although the deal will have virtually no impact on the bank's profit and loss statement, it enables it to shore up its balance sheet, he says.
Cerberus expects a 20 per cent return from its investment, which is structured as senior note with a capped return. That is not bad at a time when the market for conventional private equity deals remains frozen and hedge funds have been hit by the rout in the stock and credit markets.
CIBC unlike Merrill in the Lone Star deal is not providing financing for its deal with Cerberus and does not have exposure to any drop in value for the next three years. It does have the right to buy the portfolio back from Cerberus at the end of three years.
(October 4, 2008)
Citigroup avoids missteps of other bail-outs
By Henny Sender and Joanna Chung
Citigroup's government-brokered acquisition of Wachovia may have avoided some of the missteps made during previous attempts by federal authorities to rescue ailing US financial institutions, analysts and industry executives say.
"The Federal Reserve and the Treasury are finally taking the right steps to stabilise the system," said Larry Fink, founder of BlackRock, the asset manager that is 49 per cent owned by Merrill Lynch, which is now in the process of being acquired by Bank of America. "They have shown that they have gotten it. It is a new game."
The Wachovia deal is notable because the government in the form of the Federal Deposit Insurance Corporation is taking much of the risk on Wachovia's portfolio of toxic assets in return for a potential ownership stake in the combined bank.
As part of the transaction, Citi has agreed to absorb up to $42bn of losses on a $312bn pool of loans inherited from Wachovia.
The FDIC will absorb losses beyond that in return for $12bn in preferred stock and warrants in Citi. "[The deal] limits the downside risk to the acquirer, which was enough to convince Citigroup to do the deal," said Jaret Seiberg of the Stanford Group Company. "The FDIC limits its risk by receiving $12bn in preferred stock and warrants in Citigroup.
"This is a model that could be copied to deal with other troubled institutions. The FDIC could entice buyers to step in by limiting their downside risk on specific pools to troubled mortgages. In other words, this gets around part of the mark-to-market accounting hit that a healthy bank would suffer if it bought a sick bank." To some lawyers and bankers involved in rescuing banks, the Wachovia deal also represents an improvement from last week's FDIC takeover of Washington Mutual, which led to its sale to JPMorgan Chase.
The WaMu deal troubled many market participants because debt holders were wiped out along with stockholders. In most previous bank rescues, shareholders had lost their money but the debt remained unimpaired.
The Wachovia deal returns to the pattern of buttressing debt holders. If that had not been the case, Leslie Rahl, president of consultancy Capital Market Risk Advisors in New York, said it would have been "a blow to private capital's appetite to invest in financial institutions". WaMu's demise raised the pressure on Wachovia. The negotiations over Wachovia resembled past rescue efforts in one crucial respect the speed with which each domino in the financial system has fallen, bankers involved say.
For example, last Wednesday in New York, Bob Steel, the recently appointed chief executive of Wachovia, was hosting a dinner for executives of private equity firm Carlyle and the Qatar Investment Authority seeking to raise $20bn in capital to shore up the balance sheet of his bank.
A mere 36 hours later, with the hole on Wachovia's balance sheet ballooning, Mr Steel shifted gears and was holding talks with Citigroup and Wells Fargo about a sale of the entire bank.
People involved in the Wachovia negotiations say it differed from the WaMu talks because Wachovia was
bigger and had engaged in more complex transactions with counterparties in the markets, making the
systemic risk higher.
(September 29, 2008)
New York Tries Taming Credit-Default Swaps
State to Regulate Certain CDS Pacts as Insurance Deals
By Serena Ng and Liz Rappaport
New York regulators are attempting to tame parts of the unregulated credit-default-swaps market by requiring some sellers of these contracts to become insurance companies.
On Monday, the New York Insurance Department under Eric Dinallo reversed a previous position and issued guidelines that declared some CDS contracts are "insurance and therefore subject to state regulation," it said in a statement.
Credit-default swaps are privately negotiated contracts that act like insurance and protect investors against a default on bonds and loans. Swap buyers make regular payments to sellers, which in turn agree to make large payouts if defaults take place.
"To suddenly decree that 'covered' credit-default swaps are insurance products suggests to me that regulators haven't thought through the details of how this market works," said Leslie Rahl, president of Capital Market Risk Advisors, a risk-management consultancy in New York. She noted many sellers of CDS are banks, hedge funds and other institutions that aren't set up as
(September 23, 2008)
How Wall Street Lied to Its Computers
By Saul Hansell
So where were the quants?
That's what has been running through my head as I watch some of the oldest and seemingly best-run firms on Wall Street implode because of what turned out to be really bad bets on mortgage securities.
Before I started covering the Internet in 1997, I spent 13 years covering trading and finance. I covered my share of trading disasters from junk bonds, mortgage securities and the financial blank canvas known as derivatives. And I got to know bunch of quantitative analysts ("quants"): mathematicians, computer scientists and economists who were working on Wall Street to develop the art and science of risk management.
In fact, most Wall Street computer models radically underestimated the risk of the complex mortgage securities, they said. That is partly because the level of financial distress is "the equivalent of the 100-year flood," in the words of Leslie Rahl, the president of Capital Market Risk Advisors, a consulting firm.
But she and others say there is more to it: The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough.
Lying to your risk-management computer is like lying to your doctor. You just aren't going to get the help you really need.
All this is not to say that the models would have gotten things right if only they were fed the most accurate information. Ms. Rahl said that it was now clear that the computers needed to assume extra risk in owning a newfangled security that had never been seen before.
"New products, by definition, carry more risk," she said. The models should penalize investments that are complex, hard to understand and infrequently traded, she said. They didn't.
"One of the things that has caused great pain is complex products," Ms. Rahl said.
That made me think back to some of the great trading debacles of the last century, such as the collapse of Askin Capital Management, a hedge fund that fell apart because of complex mortgage security investments gone bad. Wasn't the moral of those stories that you shouldn't put your money (or your client's money) in something you didn't understand? Furthermore, even if you are convinced you do understand it, you're not going to be able to sell it when you need the money if no one else does.
"In some ways there is nothing new," said Ms. Rahl, who helped investigate what went wrong at Askin. "The big deals are front-page news, then they go into the recesses of people's memories."
And, ultimately, the most important risk-management systems are the ones that have gray hair. "It's not just the Ph.D.'s who must run risk management," Ms. Rahl said. "It is the people who know the markets and have lifelong perspective." And at too many firms it is those people who failed to make sure the quants really did their jobs.
(September 18, 2008)
Worst Crisis Since '30s, With No End Yet in Sight
By Jon Hilsenrath, Serena Ng and Damian Paletta
The financial crisis that began 13 months ago has entered a new, far more serious phase.
Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem -- troubled subprime mortgages -- in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and others. There's also a growing sense of wariness about the health of trading partners.
The latest trouble spot is an area called credit-default swaps, which are private contracts that let firms trade bets on whether a borrower is going to default. When a default occurs, one party pays off the other. The value of the swaps rise and fall as the market reassesses the risk that a company won't be able to honor its obligations. Firms use these instruments both as insurance -- to hedge their exposures to risk -- and to wager on the health of other companies. There are now credit-default swaps on more than $62 trillion in debt, up from about $144 billion a decade ago.
Credit default swaps "didn't cause the problem, but they certainly exacerbated the financial crisis," said Leslie Rahl, president of Capital Market Risk Advisors, a consulting firm in New York. The sheer volume of CDS contracts outstanding -- and the fact that they trade directly between institutions, without centralized clearing -- intertwined the fates of many large banks and brokerages.
Few financial crises have been sorted out in modern times without massive government intervention. Increasingly, officials are coming to the conclusion that even more might be needed. A big problem: The Fed can and has provided short-term money to sound, but struggling, institutions that are out of favor. It can, and has, reduced the interest rates it influences to attempt to reduce borrowing costs through the economy and encourage investment and spending.
(September 18, 2008)
Cascades, Contagions, and Death Spirals
The next "Big One" is coming! So plan, now. But for what exactly? And how?
By Christopher Wright
We interrupt this market to bring you the latest crisis.
Regarding the slump in asset prices, "this was the first global bubble ever, in that it all spread across all asset classes and all countries with very few exceptions," says perma-bear Jeremy Grantham, chairman of Grantham, Mayo Van Otterloo & Company (GMO).
It is often said that in a crisis, the markets move in sync. (correlations go to 1.) Asset classes can also move in opposite directions. "Some correlations go to -1," says Leslie Rahl, president of Capital Market Risk Advisors in New York City. For example, consider the rise of REITs when the NASDAQ was collapsing in 2001.
Leslie Rahl says "People put too much emphasis on asset diversification and not enough on diversifying the more subtle risk factors such sensitivities to volatility, to flights to quality, to credit, etc."
Managers can profit from analyzing their holdings for the correlative effects of such common factors as instrument opacity, complexity, illiquidity, and leverage. The key is understanding a portfolio's risk-factor concentrations.
"For instance", says Rahl, "maybe you want a limit in your portfolio on hard-to-value investments that is independent of asset class."
An overlooked common factor in the current credit crisis is vintage. MBS holders and credit rating agencies may have thought the assets behind these instruments were diversified by geography, but they didn't consider that different credit standards, some looser that others, in different years. "Most of these securities," noted Rahl, "were built with a high concentration of a single vintage.
(July/August 2008)
Opinions Diverge on Who Calls Valuation Shots When Liquidity is Scarce
Martin de Sa'Pinto, Senior Financial Correspondent
MONTE CARLO, Monaco - The liquidity crunch brought home to many investors, portfolio managers, service providers and prime brokers how sharply valuations can diverge when a portfolio becomes unexpectedly illiquid. This was particularly true for highly leveraged portfolios that, as the result of not-always-sharp fluctuations in the prices of securities, found themselves facing margin calls and forced to unwind positions rapidly.
The complexity of the security in question is clearly an issue, and when there is a lack of consensus on valuation methods, different constituencies will often make a strong case for completely distinct methods that can produce widely diverging valuations.
This was the basis for a panel discussion at the Global Alternative Investment Management conference in Monaco on June 19 was moderated by Henny Sender, international financial correspondent at the Financial Times.
"Valuation and transparency are among the hottest topics facing hedge funds and investors today," said Ms. Sender in her introduction. "How quickly can valuations change? If you don't have a good sense of valuation you cannot manage the risk of your positions."
In such circumstances, "I was a diehard advocate for mark-to-market, and I still believe it's the lesser of evils, but there are times when model-based pricing might make sense," said Ms. Rahl. This would of course imply that the model-based methodology was favored over mark-to-market because either market prices were stale or unavailable, or the relationship between the underlying and the proxy was weak. "The option of using such a valuation methodology would require strict checks and balances within a fund," she said.
"Marks on the collateral don't necessarily represent the price at which a trade can be unwound," said Ms. Rahl. "In some situations we have seen the exact same trades with two different counterparties being unwound at vastly different prices."
Ms. Rahl said relevant documentation, including research reports, broker quotes and screen shots, should be printed out and kept on file so that it is at least available in the
case of a dispute.
(July 2008)
VaR Enough?
Market turbulence tests the limits of Value at Risk
By Irwin Speizer
When an investment bank that is supposed to know better loses billions of dollars betting on subprime mortgages, you have to wonder what happened to the concept of risk management. "You can't rely on VaR as your only metric," says Leslie Rahl, president and founder of New Yorkbased Capital Market Risk Advisors. "We recommend people use three to five different metrics. It's like a doctor ordering an X ray, an MRI and a CAT scan they all tell you slightly different things."
A veteran of 35 years in the financial industry and a financial engineering pioneer, Rahl ran the derivatives business at Citibank in the 1980s before establishing her consulting firm in 1991. She preaches the importance of rigorous risk analysis and testing to cope with the impact of the types of investments she peddled in her earlier role.
Rahl recommends applying stress tests to see how a portfolio would react to sharp drops, market shifts, unusual situations or changes in underlying assumptions. Stress-testing models, which are included in risk systems, can reveal weaknesses that a simple VaR test misses. But Rahl says too many financial firms continue to rely mostly on VaR. Back in April 2000, Rahl's firm conducted a survey of risk practices and found that 45 percent of financial firms, including hedge funds, were not using stress tests at all. Although she hasn't updated the survey, she says she has noticed only a slight improvement since then.
"In risk management only about a third is quantitative," Rahl says. "A third is still a big part of the puzzle, so it is quite valuable." The remaining two thirds of the puzzle is where good risk managers earn their money. Ultimately, an accurate forecast depends on knowledge, experience and chutzpah.
"It has nothing to do with the computer," Rahl says. "It has to do with wisdom and experience."
And perhaps a bit of luck.
(June 2008)
Debtwire
Citibank responds, sues for breach of contract in credit default swap case
By Danielle Reed, New York
Citibank filed a response 23 April and countersued for breach of contract in its ongoing court battle with a hedge fund over a credit default swap.
Whatever the outcome of this particular case, the mere fact that such issues are being litigated highlights a source of concern to longtime derivatives market participants: Namely, the growing participation of hedge funds in the CDS market. "One of the things that has been of great concern to me for a long time is [the] many new entrants to the credit default swap market, especially hedge funds who have not cut their teeth on less complex over-the-counter derivatives...before taking on large sized positions in CDS," said Leslie Rahl, founder and president of Capital Market Risk Advisors. A pioneer in the derivatives market, Rahl said she is "pro-derivatives" but fears that "some of the newer players don't fully understand the differences between a liquid, transparent securities market and the world of over-the-counter derivatives."
(April 28, 2008)
Risk Management Gains Higher Profile
By Beagan Wilcox
As losses stemming from defaults on subprime mortgages ricochet through the financial markets, It has become apparent that some financial institutions with strong, well-integrated risk management programs skirted some of the worst damage.
Another risk-focused group, The Buy Side Risk Manager Forum, issued a report February that calls attention to "risk governance" as an important part of effective overall risk management.
The forum is made up of heads of risk management and chief risk officers from asset management and investment advisory companies.
The forum's report "Risk Principles for Asset Managers," states that risk governance refers to "the creation of checks and balances through organizational structure."
With the caveat that risk governance structures will vary depending on the size and complexity of the organization, the report provides five risk governance guidelines that lay the foundation for effective risk management:
- "Establishment of organizational checks and balances, including an appropriate segregation of front/back and/or middle office functions;
- Creation of a culture in which understanding and managing risk is everyone's responsibility;
- Independent control groups, including, where possible a risk manager reporting and/or having access to the [chief administrative officer], [chief executive officer], Board, Executive Committee or the like;
- Senior management and board level understanding of risks, definition of risk tolerances, and setting of risk management and ethical tone;
- An organizational structure in which risk management roles and responsibilities are clearly defined, including written policies and other procedures identifying the specific people within the organization who are authorized to approve various actions, make exceptions to various policies, etc."
The report cites a recent survey of mutual funds conducted by the ICI, which states that "the vast majority" of fund groups do not have chief risk officers, but that there is a "growing trend toward creating such positions."
At the same time, independent fund directors should assure themselves tat the risk management programs of the funds they oversee are adequate given their trading strategies and investment objectives, says Barbara Lucas, partner at Capital market Risk Advisors (CMRA), a consulting firm that works with various financial entities, including mutual funds, to assess risk.
CMRA worked with the Buy Side Risk managers Forum to draft the report n asset managers' risk principles. Lucas suggests that boards ask their management trams to look at the principles, which are not prescriptive, and assess where they stand versus the principles. They should then lay out their plan as to which ones they aspire and which ones are not.
(April 8, 2008)
Don't Trust the Wall St rally
By Bethany McLean, Editor at Large
Up till now, all eyes have been on the losses that are hitting the financial sector from the acronym soup of new instruments such as CDOs and SIVs. Everyone is scared, and rightly so of the MUB (Monster Under the Bed) that might be lurking in supposedly safe havens.
The last decade saw the explosion of securitization the carving up and redistributing of risk-the boom in hedge funds, and the private equity mania.
In a paper published in the fall of 2005, risk management gurus Leslie Rahl and Barbara Lucas of Capital Market Risk Advisors, noted that in the past decade, a lot of things have happened that aren't supposed to happen, from the interest rate hikes of 1994 to the 1998 collapse of LTCM to the 2001 terrorist attacks. Or as the authors put it, "once-in-a-lifetime events seem to occur every few years."(March 23, 2008)
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INDUSTRY ALERT |
Global Investment Technology
Buy-Side Group Outlines Risk Management Best Practices
NEW YORK - Governance, investment and operations personnel in the securities and investments industry will have all to adhere to certain principles to best manage risk, according to the Buy Side Risk Managers Forum and Capital Market Risk Advisors (CMRA), a consultancy.
The forum, a group of heads of risk managements and chief risk officers from traditional buy-side asset and investment management firms, recently issued a set of risk principles within each of these three areas, titled "Risk Principles for Asset Managers."
"This piece is an important update, "says Leslie Rahl, President of the consultancy CMRA and a member of the forum. "Risk management is a journey not a destination. It's something that keeps going and keeps needing updates."
Governance risk principles concern organizational structure and oversight mechanisms, including the importance of independent controls, segregation of functions, senior management involvement in risk management and oversight and adoption of appropriate policies and procedures.
Investment risk principles relate to the need for risk controls at the portfolio level, and address market risk, liquidity risk, leverage, valuations and other aspects.
Operational risk principles concern risk occurring in the ordinary course of business and in disasters. These address identifying, assessing and monitoring such risks, setting up adequate systems and minimizing manual processes, managing counterparty credit risk and assuring business continuity in a disaster.
"These principles recognize the broader function for risk management, which is not just computing the numbers and tracking the limits, but the proactive functions that help firms optimize the relationship between risk and rewards," says Rahl. "The emphasis on governance has evolved. The focus on governance is clearly something that the regulators are looking for and where the industry is evolving. The principles should provide an important framework for best practice risk management. The discussion of risk governance and valuation are particularly critical in today's market environment."
(March 17, 2008)
