Comments on: Risk Management at Banks http://alephblog.com/2009/09/12/risk-management-at-banks/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 18:05:33 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: brianhttp://alephblog.com/2009/09/12/risk-management-at-banks/comment-page-1/#comment-23275 brian Sat, 12 Sep 2009 20:10:10 +0000 http://alephblog.com/?p=2007#comment-23275 Section V.B of the Senior Supervisor's report "Observations on Risk Management Practices During the Recent market Turmoil" recommends the use of multiple measures of risk, including 1) notional measures, and 2) both conditional and unconditional measures of risk. This discussion can be found at http://www.newyorkfed.org/newsevents/news/banking/2008/SSG_Risk_Mgt_doc_final.pdf Paying attention to simple notional measures of risk helps compensate for the potential mis-rating of exposures, as firms will usually be willing to hold much larger volumes of highly-rated credits. In terms of tail events, "fallen angels", whether corporate or mis-rated super-senior tranches, usually contribute to the largest realized losses. Notional measures compensate for the one-way risk of highly-rated exposures. Section V.B of the Senior Supervisor’s report “Observations on Risk Management Practices During the Recent market Turmoil” recommends the use of multiple measures of risk, including 1) notional measures, and 2) both conditional and unconditional measures of risk.

This discussion can be found at http://www.newyorkfed.org/newsevents/news/banking/2008/SSG_Risk_Mgt_doc_final.pdf

Paying attention to simple notional measures of risk helps compensate for the potential mis-rating of exposures, as firms will usually be willing to hold much larger volumes of highly-rated credits. In terms of tail events, “fallen angels”, whether corporate or mis-rated super-senior tranches, usually contribute to the largest realized losses. Notional measures compensate for the one-way risk of highly-rated exposures.

]]>