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Citigroup CEO proposes 'benchmark' risk management policy

Jan 20, 2012 Philip Burgess

Risk management varies from industry - not only in terms of importance, but definition as well. For example, risk assessment in science and technology has nothing to do with profit-making or financial viability. In the banking sector, however, it is the instrument through which credit decisions are made. If the 2008 financial collapse and ensuing recession taught us anything it's that financial institutions need to employ greater - perhaps regulated - investment and consumer credit risk management policies. But interests differ, and the constant vying between federal regulators, ratings agencies, banks and in-house risk managers makes for a complicated field. With this challenge in mind, Citigroup CEO Vikram Pandit has developed an idea to establish a "benchmark" portfolio, against which all financial institutions measure risk. "The benchmark portfolio would not actually exist on the balance sheet of any one institution," Pandit wrote in a column for the Financial Times. "Rather, it would be a collection of real investments that stand in for the kinds of assets that most financial institutions actually hold at the time. What is more, its contents would be 100 percent public." Institutions would be required to produce quarterly reports that include risk assessments, stress-test results and risk-weighted assets, he added.