No Time for Complacency
November 18, 2008 Leave a comment
In a speech last week to the Banque Centrale du Luxembourg, Vice Chairman of the Federal Reserve Donald Kohn provided a thorough analysis of events leading to the current financial crisis. A major portion of his remarks focused on the inadequate investment in risk management by many financial institutions. In his view, the long period of relative stability in financial markets bred a high level of complacency and inattention to the growing risks. As he stated,
“Complacency contributed to the unwillingness of many financial market participants to enhance their risk-management systems sufficiently to take full account of the new (perhaps unknown) risks they were taking on.”
Risk management should be a primary focus of all companies, financial and non-financial, at all times. It is precisely the moment when profits are at their peak and economic times are good that companies should be most vigilent. Now, we are in catch-up mode and must make greater investment in risk management to ensure complacency does not become part of the risk equation again.