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CRO RISK FORUM: Systemic risk – it’s still out there
28 July 2009
Can enterprise risk management cope with contagion? Oliver Peterken, CRO of Aspen Re, explains why macro-level systemic-risk should be kept under close review
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The worst financial crisis since the 1930s has not unreasonably caused a crisis of confidence among the proponents of enterprise risk management (ERM). Financial institutions had pioneered this approach to risk management, spurred on by the regulator and rating agencies. So how could a very financial crisis, one that originated in banking’s subprime sector and spread to the credit, money and then capital markets, have occurred to such a systemically devastating effect?
While there have been many factors contributing to the financial crisis, the simple fact is that some degree of control over wider money (that is, credit) supply coupled with a rudimentary element of macro-prudential supervision would have reduced the scale of the crisis. Widespread regulatory failure, coupled with asymmetrical reward schemes in market participants, meant that some form of crisis was inevitable. As in the 1930s, policy mistakes by central banks and governments have deepened and maybe...
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