Financial firms' risk management still flawed
A survey by Deloitte finds many firms still
fail to carry out adequate testing
Despite the credit crunch global financial
institutions still have critical gaps in their risk
management practices, according to a survey of more
than 100 firms by Deloitte.
It reports that many still fail to carry out independent
checks on financial models or regular stress tests for
risky structured products. Around half the financial
institutions surveyed by Deloitte admitted they did
not perform independent checks on their financial models
and two in three of these had no immediate plans to
do so.
Fewer than one in two firms had made risk-management
responsibilities an integral part of performance goals
and compensation decisions for senior management. More
than 40% of financial institutions did not conduct stress
tests for their structured product exposures, such as
collateralised debt obligations (CDOs), which have created
large losses for many firms.
Even where firms did stress test their structured products,
only 17% did so daily while two in three tested on no
more than a quarterly basis.
''The past two years have demonstrated the need for
enhanced risk management capabilities at financial institutions,
and the challenging times that undoubtedly lie ahead
make it an even greater priority,'' said Edward Hida,
head of Deloitte's global financial services industry
practice.
''Given the pace at which markets move, institutions
may face regulatory or other pressure to perform stress
testing more frequently.''
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