CFO’s

I think it did and that Greenspan was right. An important point in my thinking is that the banks that failed did NOT manage risk on the risk they retained. And the CEOs of those banks did not emphasize risk management and involvement of top executives in that concept.

I’m the first to point the finger at government intervention as a culprit but this is simply passing the buck.

How do you feel about the subprime mess? Has it affected you? In what way? Are you upset with the banks for their poor risk management? What is the responsibility of the individual investor in this debacle?

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Post from: EveryJoe

Did the Fed Contribute to Poor Risk Management by Banks?

“Risk was not integrated but split between a credit risk officer and a market risk officer, both of whom reported to the CFO, who then reported to the CEO. That may work at a place like Goldman, where decisions are made collectively among executives. But at a firm with a strong-willed CEO, like Merrill, it can backfire. People close to Merrill say that even if Edwards [CFO] saw the risk, contradicting then-CEO Stan O’Neal was a dangerous game.”

This quote from the CFO magazine article on risk management on failing (Goldman) and successful (Merrill) banks, reveals a problem with many high profile, high impact projects; i.e., organizational culture trumps structure. Fear of contradicting a leader can drive a company in the wrong direction, even with a seemingly good reporting structure.

All this talk of organizational structures, reporting relationships, and bringing credit risk and market risk functions together can’t hide the culture problems that are behind the subprime mess. It’s really very simple, the CEOs let it happen. They risked their firms betting on extremely risky investments.

What do you think? And how does the concept of risk management apply to your business? Are you pursuing risky projects that could have a severe negative impact on the business?

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Post from: EveryJoe

Risk Management Problems Are Culture Problems

CFO

“the inability to properly manage risk, and the failure of stress tests have so far resulted in global bank losses of $265 billion. With a few notable exceptions, bank CFOs seemed willfully ignorant of snowballing risk.”

The worst performers, like Merrill Lynch and Citigroup, shared common problems of a siloed approach to risk and insufficient communication among executive levels in finance, risk and operations. The best performers so far, represented by firms such as Goldman Sachs and Lehman Brothers, give risk a high profile in decision making and have CFOs who manage risk closely.

Many firms allowed the importance of risk management to wane. Contributors were both governmental and corporate leaders. More on this in my next post.

How does your company manage risk? Is it the purview of the CFO? If so, how does the CEO create an environment where all executives contribute to the risk discussion?

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Post from: EveryJoe

Risk Management: What Can We Learn from the Sub-Prime Crisis?