Introduction: The Management of Risk Management

Sergio Scandizzo

At the time of writing (June 2010), the financial crisis (originating with US subprime borrowers defaulting on their mortgages) may have run its course, but its effects on the world economy are still very real and very painful and it is not yet clear what kind of path the recovery will take. Amid the public outrage on the combination of recklessness, greed and outright incompetence (notably of risk-management matters) that has brought the financial system to its knees, and the world close to economic meltdown, one group of financial executives has emerged with its reputation more or less still in one piece: operational risk managers. No doubt, this is chiefly due to other groups having contributed more directly to the mess from more sensitive and powerful positions. And, also doubtlessly, this is due to operational risk managers’ contributions to the control of their firms’ risks being perceived as something of an add-on to top management and market and credit risk functions.

However, if we look closely at the causes of this crisis and at the kind of practices that could have prevented it, we see that it is difficult not to recall Friedrich Hayek’s lament about the economic