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Adopting risk intelligence in today's volatile market
Risk intelligence refers to the ability to make informed decisions about risks based on historical, current and future views of a business. Its profile in the financial services industry has risen significantly since the collapse of Lehman's in 2008. Here, a lack of vital and updated risk information such as counterparty risk exposures, liquidity numbers and risk-based performance metrics for intraday trading made the ability to make informed decisions very difficult. As such, financial institutions (FIs) were in jeopardy of making the wrong decisions and in many cases no decisions were being taken. As these dramatic events showed, pinpointing where risk lies is not always straightforward and as a result many financial institutions now consider navigating the volatility of today's markets without the ability to understand and manage risk intraday to be very dangerous. Risk managers are now rapidly changing their approach to risk management with real-time risk intelligence becoming the goal for many FIs, particularly within the trading and capital markets arena. Many are looking to roll out real-time analytics across their operations including foreign exchange, interest-rate, credit, equities and fixed-income trading. To date only a handful of FIs have this capability and it is still limited, most are still struggling with the fundamentals of consolidated or enterprise risk management. Based on the recent Chartis Research report, Real-time Risk Intelligence — Leading Practices from Quartet FS (2010, London), the author suggests why conventional risk management methods no longer suffice and provides an overview of some of the difficulties in achieving real-time risk intelligence, as well as describing some of the new approaches forward-thinking FIs are taking in order to meet the requirements of today's market.
The full article is available to institutions that have subscribed to the journal
CitationWhipple, Allen (2010, December 1). Adopting risk intelligence in today's volatile market. In the Journal of Risk Management in Financial Institutions, Volume 4, Issue 1.