Busted: Bankers and The Global Economy

March 11, 2008

Feds Risk Management Advice

Filed under: banking, credit, investment, money — Tags: , , , , , , , , , , — digitaleconomy @ 11:40 am

At his speech at the American Bankers Association Summit, Fed Governor Randall Kroszner spoke about the importance of risk management. “As banks have extended their range of activities and involvement in new markets, they must be particularly mindful of potential for concentrations of risk to arise for a number of reasons. First, any new activity will be less familiar and involve less data and experience for evaluating risk compared with long-standing activities or markets. Second, risk concentrations can be hidden during normal times and may only manifest themselves during times of stress when activities or instruments that might in normal times have little or negative correlation suddenly become correlated, such as with a market-wide increase in the demand for liquidity as we have seen recently.”

Kroszner is repeating the new mantra of careful risk-management after the bankers have literally destroyed the economy from their latest money-making adventures. He points out that one of the major downfalls in banking has been the separation of senior management from risk managers, resulting in lack a attention to the most important aspect of safety in banking. He also points out that incentives for “good behavior” is a good idea. He stumbled around on this idea, with little to say of any importance other than more control and limits were needed. He emphasized rechecking “stress testing” of banking instruments. However, he didn’t suggest using different standards, but simply using the same old means that brought banking into trouble to begin with. He indicated that diligence was needed, but did not indicate any correction or indication of flaws within the system other than user motivation. He emphasized more care regarding bank liquidity. Essentially, Mr. Krozsner is suggesting the return of bankers to the good old-fashioned ideals of prudence and caution. Are the bankers listening or still in profit-making mode?

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3 Comments

  1. great article!

    CR

    Pingback by Credit Recovery — March 11, 2008 @ 11:57 am

  2. interesting post today!
    OC Register

    Pingback by OC Register — March 11, 2008 @ 12:14 pm

  3. Hi,
    Good resolutions are simply checks that men draw on a bank where they have no account.

    Comment by Bank charges — March 15, 2008 @ 10:07 pm


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