risks & resolutions: the “day after” for financial institutions april 15, 2009 lessons...
TRANSCRIPT
RISKS & RESOLUTIONS: THE “DAY AFTER” FOR FINANCIAL INSTITUTIONS
APRIL 15, 2009
Lessons Learned1
Key Points
Financial system developments and leverageOriginate to distribute business modelInterconnections in the financial systemRole of the unregulated or “shadow” banking
systemIncentives
2
3
4
5
Originate-to-Distribute Model
Market largely shut downKey lessons learned:
Underwriting matters Does the market understand what it is buying Transparency, disclosure
Complexity or simplicity?Sustainable business model?
6
7
8
Interconnections
Complexity of financial systemTransformation of risksLessons learned:
Need to look in more than one place for risks Stress testing and scenario analysis – what if? Correlations Left hand and right hand are in sync
9
Role of unregulated financial system
Nonbank world – how much of a driver are they?
Lessons learned: General consistency in practices very important Risks can build up in places you don’t expect “Save us from ourselves”
10
Incentives
What drives risk taking?What drives risk management?Critical to understanding incentives
Bank and nonbank sector practices What is the right balance?
11