In the eye of the beholder: Regulatory versus industry risk perception
Abstract
Is the perception of risk, as outlined and defined by the regulatory and supervisory community, shared by private financial institutions? In this paper, we identify risk themes present in the public disclosures of key financial organisations and discuss similarities and differences. We find that for established (traditional) risk themes, there is relatively greater consensus between regulators and industry participants. For emerging risk themes, however, we find a divergence in perspectives between industry and regulators and, at times, even within each group. We discuss this spectrum of risk perspectives as well as approaches to mitigate the resulting ‘risk gap’ between the regulators and the industry.
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Author's Biography
Meghan E. Burns is an Associate Principal Analyst at the Financial Industry Regulatory Authority’s (FINRA) Office of the Chief Economist (OCE). Prior to working at FINRA, she worked for the Municipal Securities Rulemaking Board (MSRB). She is completing her MBA at Georgetown University.
Dror Y. Kenett is a multidisciplinary financial economist, an expert on financial networks, financial stability and systemic risk. He is internationally renowned for his expertise on network-based models, financial contagion and correlation-based models. He has published more than 40 papers in financial, physics and engineering journals, such as the Journal of Banking and Finance, Journal of Risk and Financial Management, Quantitative Finance, Nature Physics and Scientific Reports. He has a PhD in physics from Tel-Aviv University, Israel.
Jonathan S. Sokobin is Chief Economist and Senior Vice President and oversees the Financial Industry Regulatory Authority’s (FINRA) Office of the Chief Economist (OCE). Prior to joining FINRA, he was the head of Research and Analysis in the Office of Financial Research (OFR) at the US Treasury Department, and prior to that he was Acting Director of the Securities and Exchange Commission’s (SEC) then Division of Risk, Strategy, and Financial Innovation. He received his PhD and MBA in Finance from the Graduate School of Business at the University of Chicago.
Citation
Burns, Meghan E., Kenett, Dror Y. and Sokobin, Jonathan S. (2020, June 1). In the eye of the beholder: Regulatory versus industry risk perception. In the Journal of Risk Management in Financial Institutions, Volume 13, Issue 3. https://doi.org/10.69554/LJVA8021.
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