vol. XX no. 3
|
|
|
|
|
We
didn’t see them coming, and we weren’t prepared – the terrorist attacks
on 9/11, the biggest hurricane to ever wallop the United States, a
credit crisis more severe than any since the Great Depression. The
biggest risks are the ones we can’t see coming, and by that very fact,
they are the ones that are difficult – some say impossible – to predict
or manage.
Despite a decade of recognizing the need to take a
comprehensive approach to risk management, corporate and government
sectors are struggling to recover in the latest financial crisis. The
questions then follow: How much can we actually do to effectively
reduce exposure to risk and control outcomes? Can we put much faith in
the sophisticated mathematical models that have been developed to
quantify risk?
“That marks the frontier of risk management
today,” says Rich Phillips, department chair and Bruce A. Palmer
Professor of Risk Management and Insurance at the Robinson College of
Business. “We are trying to set up data systems and tools to predict
risk and to combine those with the manager’s intuition.”
A
case in point is JPMorgan Chase. So far, the megabank has managed to
weather the strong winds of the subprime mortgage meltdown better than
many of its competitors. The company got out of the market of
securitized subprime mortgages even while those assets were red hot,
thanks to the instincts of its leader. Although the numbers didn’t
fully support his decision at the time, Chairman and CEO Jamie Dimon
made the call to abandon the subprime securities based on his gut.
JPMorgan’s
culture of risk management helped it avoid the fate of Citigroup, UBS,
and Merrill Lynch. The firm had developed and distributed one of the
most widely used mathematical models for measuring risk, Value at Risk
(VaR), and in 1998 the bank even spun off its own consulting company,
Risk Metrics. Yet the VaR tool alone was not enough to avert the
subprime quicksand. It took the instincts of its leader, subjecting
that data to analysis, that delivered JPMorgan to its prime standing.
Top | Next Page 
|
|
 |
|
|
|
|
|
