A Call for Action
November 17, 2008 Leave a comment
The Group of Twenty (“G-20″) met in Washington, DC on Saturday to jointly develop action plans to address the growing economic crisis sweeping the globe. A need for greater transparency and accountability in our financial markets served as the primary theme for the meeting. The result of their discussion was a strong declaration regarding the root causes of the problems we are facing and recommended actions to remedy the situation. One of their action plans focused squarely on risk management. Below are the related risk management actions to be taken by the end of March 31, 2009.
- Regulators should develop enhanced guidance to strengthen banks’ risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management.
- Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions.
- Supervisors should ensure that financial firms develop processes that provide for timely and comprehensive measurement of risk concentrations and large counterparty risk positions across products and geographies.
- Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts.
- The Basel Committee should study the need for and help develop firms’ new stress testing models, as appropriate.
- Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking.
- Banks should exercise effective risk management and due diligence over structured products and securitization.
A great deal of work will be required to properly address these recommendations. However, the end result will be a much stronger global economy. Wheelhouse Advisors can help your company quickly assess its risk & control programs and provide cost-effective solutions to the recommended actions. Visit our website at www.WheelhouseAdvisors.com to learn more.