Expect the unexpected

The various post mortems into the causes of the subprime crisis have pointed to an absence of forward-looking risk measures. Some regulators have long warned about a lack of imagination when it comes to stress testing and a failure by senior bank management to take the outcomes seriously. Will the massive bank writedowns change this mindset? By Alexander Campbell

Why didn't they see it coming? Banks and regulators are scrambling to explain why their risk management teams failed to predict the scope of the recent dislocation in global financial markets. Stress tests are coming under particular scrutiny - market overseers around the world accuse banks of failures of imagination, analysis and communication in carrying out these vital risk measures, and tighter regulation is likely.

Shortly before the collapse of Bear Stearns in March this year, the Senior