Risk Management Watch: Firms Continue to Reshuffle Risk Teams
Fed Bank of New York, President, Timothy Geithner, has proposed a plan to reduce risk in the financial system. In his comments published by FT.com, Geithner outlines five steps to improve market resilience in the future. Meanwhile, subprime losses have not only captured the attention of corporate boards, they’ve also forced banks to shore up their risk teams and create new CRO positions.
In the wake of Geithner’s comments, two more firms added new Chief Risk Officers to their top management ranks. A senior-level industry veteran and recruiter working with executive search firm, A.E. Feldman, says, risk is more important now than ever before as corporations re-shuffle risk management jobs and expand their risk teams.
Geithner: Reduce Risk in the Financial System
Fed Bank of NY President, Timothy Geithner says the financial boom fed demand for risk, according to his comments on FT.com. He says, “Products were created to meet that demand, including risky, complicated mortgages. Many assets were financed with significant leverage and liquidity risk and many of the world’s largest financial institutions got themselves too exposed to the risk of a global downturn.” Geithner concludes, “As concern about risk increased, investors pulled back, triggering a self-reinforcing cycle of forced liquidation of assets, higher margin requirements, increased volatility.”
Geithner goes on to point out five ways to strengthen the financial system in the future:
- Increase shock absorbers. Geithner says this will require more exacting expectations on capital, liquidity and risk management for the largest institutions that play a central role in intermediation and market functioning.
- Improve the capacity of the financial infrastructure to withstand default by a big institution. This will require taking some of the risk out of centralized clearing houses.
- The US regulatory framework must ensure that counterparty credit risk management in the supervised institutions limits the risk of a rise in overall leverage outside the regulated institutions that could threaten the stability of the financial system.
- Streamline and simplify the US regulatory framework. Geithner adds the Fed should play a central role in such a framework.
- Regulators need a stronger capacity to respond to crises.
Chief Risk Officers Hot Commodities
In the wake of Geithner’s comments, firms continue to add chief risk officers to their top management ranks. Public companies hired or promoted 25 professionals to the position of Chief Risk officer (CRO) in 2007—a 25% increase over the previous year, reports Financial Week. The report also contends that this year, hires and promotions are on track to outpace last year’s big bump by a staggering 140%, citing data from Liberum Research.
Among the firms that have recently hired new CROs or added the position to their top ranks: UBS AG, Washington Mutual, Commonwealth Bank, Merrill Lynch, Citigroup, Lehman Brothers, State Street, Ambac, PrivateBancorp, Bank of Montreal, and CIFG Holding.
New CROs
The Clearing Corporation, an independent derivatives clearinghouse, recently announced the appointment of a new Chief Risk Officer. In naming Dr. Stanislav Ivanov CRO, CCorp says the move reflects the firm’s increased emphasis on delivering high quality risk management services to the OTC derivatives market.
“Our expanding presence as a central counterparty services provider to the OTC markets requires that we provide those markets with the same standards of safety and soundness that we have traditionally provided to our exchange customers,” said Michael C. Dawley, Chairman of CCorp. “Stan’s appointment to the newly created Chief Risk Officer position underscores our commitment to provide the highest levels of risk management protection to the markets we clear.”
Eutelsat Communications also announced the appointment of Ignacio Gonzalez Nunez to the newly-created post of Chief Risk Officer. “Risk management is now an integral component of an organization’s structure and a best practice among many large companies,” said Giuliano Berretta, Eutelsat Communications Chairman and CEO. “The creation of this new post will enable us to build a comprehensive Risk Management program and promote this model across Eutelsat and our subsidiaries in Europe, Asia and the Americas.”
