Risk and Governance
First published:
ISBN: 9781782723271
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Operations Risk in Extreme Market Conditions
Introduction: The Confluence of Risk and Governance
Corporate Governance, Information and Control
The Nature of Corporate Governance in Banking
Regulation and Governance
The Centrality of Risk Management
The Mission, Organisation and Governance of Risk Management
A Cartography of Banking Risks
Operations Risk in Extreme Market Conditions
Managing Legal Risk
Managing Reputation Risk
Drawing Boards: Motivations and Responsibilities in the Boardroom
Executive Compensation: Performance, Regulation and Ethics
Fair Value, Auditing and Internal Controls
Risk Management and the Role of Culture
The Board of Directors
Compensation
Auditing, Reporting and Disclosure
In the aftermath of the 2008–09 financial crisis, commentators and regulators focused mainly on credit risk (as the primary cause) and on prudential regulation overhaul (as the primary remedy). Operations practitioners, however, and also the savviest risk managers, learned also a few other critical and highly practical risk management lessons. These lessons revolved around the challenge of providing continuity to operations in extreme market conditions, the threat to the business from the default of key counterparts and/or agency services providers, the gap between the complexity of operations conceived in the front office and the tools available in the back office to handle them. This chapter will look at the crisis from a back-office perspective, and will draw on real life cases as well as from the possible scenarios they suggest. It will close with a discussion of the controls and procedures that can help mitigate the risks of those scenarios.
FINANCIAL CRISES FROM A BACK-OFFICE PERSPECTIVE
In their seminal book Managing the Unexpected, Karl Weick and Kathleen Sutcliffe explore the management of risk in what they call high reliability organisations (HRO), organisations that
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