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Risk management: How do banks handle it?

Nov 01, 2011 Walt Wojoiechowski

Risk management: How do banks handle it?
When it comes to risk management, particularly within the finance sector, efficacy seems to come down to a matter of enforcement. Virtually all organizations that handle large sums of money have some form of risk management system in place, but how many of those firms actually carry out those practices is another matter.
 Some critics point to UBS Bank and its recent loss of $2 billion by a single rogue trader as evidence of the risk management failures, namely the enforcing of existing policies. "Risk and operational systems did detect unauthorized or unexplained activity but this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced," UBS interim chief executive Sergio Ermotti told employees in a memo earlier this month, according to InformationWeek. Still, other analysts point to excessive risk taking as an essentially unavoidable byproduct of financial practice. Regardless of the instruments that are put in place to curb risk, there will always be individuals who exploit loopholes and scoff at the laws to affect personal gains. In fact, InformationWeek contributor Mathew Schwartz even argues that the banking sector is more well[-]off than other industries when it comes to risk management - their breaches are merely more sensational.