Risk Identification

Sergio Scandizzo

Everyone has heard and read about Barings, LTCM and Société Générale and everyone recognises them as prime examples of the disastrous consequences operational risk may have when left unchecked. Yet what do these, and other, cases have in common? What is it that went so wrong to force Barings and LTCM out of business and Société Générale to take its biggest loss ever? Was it the lack of segregated duties and appropriate reporting lines? Or inadequate risk management systems? With hindsight, it is clear not only what went wrong in managing those risks, but also what those risks were. However, if there is one thing that comes across clearly from all the analysis and reports made on those and other cases, it is the complete lack of awareness exhibited by managers of the very possibility of those events happening. They may or may not have been able to assess and even manage those risks, had they recognised them, but the fact was they did not. Similarly, the build-up of subprime exposures, the unchecked use of CDSs and the portfolios swollen with derivatives nobody really understood how to value continued throughout 2008 with very few people grasping the enormity of the dangers attached