The Centrality of Risk Management

Sergio Scandizzo

In Chapter 3, we looked at some of the key aspects of financial regulation, particularly at how governments and supervisors have steered the regulatory framework in an attempt to enhance the stability of the international financial system while trying to restrain the excessive risk-taking that emerged during the financial crisis. Before examining in detail how risk management in financial institutions works, this chapter will discuss why risk management remains such a pivotal feature of banking regulatory governance, and why such centrality did not fade – but gained even higher prominence after the financial crisis.

Such enduring prevalence of a risk management paradigm – that is, of the policy principles, methodological tools and technological infrastructure underlying the approach to risk in financial institutions – may look puzzling in the face of empirical evidence detailing the consequences of the mandatory implementation of some risk management methodologies. In fact, some authors, adopting a more sociological perspective to the evolution of risk management practices, have argued that the ubiquitous presence of risk management concepts in financial institutions reflects the