Wednesday, February 25, 2009
What's Wrong with Risk Management?
Eurekahedge, in a recent article suggests that the biggest problem that relates to risk management is the issue of corporate governance. Within financial institutions, especially in the banking industry, risk management is a must under current regulatory frameworks. The reason for setting up risk management is to balance the benefit between the owenrs of capital and the profit-making function of the bank. Investors provide the capital to financial institutions of generating profit. In turn, these financial institutions then organize resources like proprietary traders, financial engineers, operations support, etc to make use of this capital to generate profits. In return, the compensation of the profit-makers is largely based on how much money they can make. Under these circumstances, the profit-marker has more compensation if it can generate more profit. For the full article, please click here. What further insight can you offer?