Credit risk: learning from the crunch

New business opportunities bring new risks. The market innovations that helped precipitate the credit crisis demonstrate that a complex new approach to risk management is required - and that means thinking beyond models based on derivatives and Basel II, explains Philippe Carrel

From the world's largest financial institutions right down to the man on the street, the reverberations of the subprime meltdown are still being felt. But at least the passage of time has enabled observers to gain a perspective on the causes of the crisis, and what its effects may be.

For one, the credit crunch may have succeeded in sweeping away some of the great Basel dogmas. The mighty frameworks consisting of internal models proved to be ineffective. Risk-adjusted capital allocations finely