Risk Management Watch: Wall Street Banks Crack Down on Risk
In an attempt to avoid another financial-market meltdown, a group of the world’s biggest banks, including Goldman Sachs, Morgan Stanley, JPMorgan Chase, Merrill Lynch and Citigroup, issued a report proposing a series of far-reaching reforms with the goal of cutting down on risk. Among the proposals: banks would hold down the number of investors who can buy complex financial products, implement more stringent accounting for off-balance sheet items, and spend more on technology and risk management.
Risk management has become an offensive field. Corporate boards today face unparalleled levels of business complexity, new regulations and mounting shareholder demands. As a result, executive search firm, A.E. Feldman, says risk management jobs are evolving to better manage initiatives to ensure that business objectives are met, losses are minimized, business processes are improved and greater accountability is achieved. A.E. Feldman reports that a growing number of companies are shoring up and reorganizing their risk teams in an effort restore confidence. Looking ahead, the firm adds that senior communications and marketing professionals will also become hot commodities as firms reposition and rebrand themselves.
The Counterparty Risk Management Policy Group, comprised of several top banks, says it has issued proposals to crack down on risk in the wake of “the worst financial market calamity of the post-war era.” The report states, “The cost of the credit crisis in economic, financial and human terms has already reached staggering proportions and, even after 12 months substantial vulnerabilities remain.”
Gerald Corrigan, Managing Director of Goldman Sachs and former Federal Reserve Bank of New York President, led a study on which the banks’ risk reform proposals are based. The FT quotes Corrigan as saying, “No one has any illusions [about the severity of the problems]. Costly as these reforms will be, those costs will be minuscule compared to the hundreds of billions of dollars of writedowns experienced by financial institutions in recent months, to say nothing of the economic dislocations and distortions triggered by the crisis.”
The banks have proposed new criteria for the “sophisticated investors” allowed to buy complex financial products, reports the FT. Under the proposed plan, even pension funds and other institutional investors would no longer be automatically allowed to buy bonds backed by assets such as subprime mortgages, and all but the wealthiest retail investors would be prohibited from buying structured products.
The proposals are being delivered to global regulators with the expectation that rules will be produced for credit markets that would cut risk of contagion and restore confidence, notes the FT. Corrigan, however, has acknowledged that the proposals are “extremely ambitious” and “will take time.”
Right now, as the economy continues to slow, banks are relying more heavily on their risk management divisions to help protect them from multibillion dollar writedowns. Seeking Alpha says risk professionals are becoming more involved in everyday affairs…not just the tiny voices in the back of the room. Industry veterans now recruiting for A.E. Feldman echo this view, pointing out that Chief Risk Officers are being handed more power.
To learn more or inquire about job trends in risk management the lines of communication are open. Contact the Mitch Feldman, President of A.E. Feldman, and the firm’s executive recruiting team here.
