Home > Risk > Do banks and colleges understand risk management?

Do banks and colleges understand risk management?

February 10, 2012 Leave a comment Go to comments

It’s great to see CNN talking about the popularity of risk management classes at Columbia. See this video. But, it is important to listen carefully:

  • The class is about financial engineering
  • They are training people to ‘run the models’ for banks and financial services companies
  • They don’t mention enterprise-wide risk management

Let’s not confuse the management of portfolio risk with the management of risk to the achievement of objectives.

Quants have their place, their value.

But, so does a common-sense approach to understanding all the potential effects of uncertainty on the success of the business – which are not limited to financial positions, and cannot all (sorry quants) be modeled.

When the risk managers at the major banks, insurance companies, and trading houses talked about risks – such as the potential for prices to drop – did they consider reputation risk? Sometimes you need to temper the desire for short-term trading profits (achieved by taking advantage of those less-informed than you) when it could cause long term reputation damage to the company.

I will cheer when I see Columbia and the other major schools teach ERM.

By the way, why isn’t risk management a core element of every MBA program?

Do banks and other financial services companies understand the necessary depth and breadth of risk management? I would love to hear.

    February 12, 2012 at 11:20 AM

    I will also cheer when I see Columbia and the other major schools teach ERM. It will happen because a few programs will start up at other institutions and hopefully be successful and then the real rainmaker schools will understand that they can make money from the ERM programs. Right now two of the major problems I see are the continued silos in many of the institutions with competing programs. Also I see potentially the tenure of professors being an issue. It is sometimes difficult to get new ideas in place in institutions that have not had much turnover. But things will change to be sure

    It is not a core element of every MBA program because no one knows any better. They were waiting for smart folks like you to come along and help them move in this direction. And you will.

    there is absolutely no way that banks and other financial institutions understand the depth of the risk management material that we have been discussing. many are still stuck on their financial models and the behavioral stuff and soft risks are non existent. I worry much more about risk that is outside the balance sheet- human resources, intellectual capital, branding, tone at the top, reputation- this is much different than the obsession with such things as VaR, RAROC and a whole host of other financial models

  1. February 11, 2012 at 10:09 AM
  2. February 14, 2012 at 4:07 AM
  3. February 14, 2012 at 5:43 AM

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