A special report on financial risk
Risk managers to the fore
Feb 11th 2010
From The Economist print edition
Illustration by Tim Marrs
IN A speech delivered to a banking-industry conference in Geneva in December 2006, Madelyn Antoncic issued a warning and then offered some reassurance. With volatility low, corporate credit spreads growing ever tighter and markets all but ignoring bad news, there was, she said, “a seemingly overwhelming sense of complacency”. Nevertheless, she insisted that the firm she served as chief risk officer, Lehman Brothers, was well placed to ride out any turbulence, thanks to a keen awareness of emerging threats and a rock-solid analytical framework.
Behind the scenes, all was not well. Ms Antoncic, a respected risk manager with an economics PhD, had expressed unease at the firm’s heavy exposure to commercial property and was being sidelined, bit by bit, by the firm’s autocratic boss, Dick Fuld. Less than two months after her speech she was pushed aside.
Lehman’s story ended particularly badly, but this sort of lapse in risk governance was alarmingly common during the boom. So much for the notion, generally accepted back then, that the quality of banks’ risk regimes had, like car components, converged around a high standard. “The variance turned out to be shocking,” says Jamie Dimon, chief executive of JPMorgan Chase.
雷曼的故事以无比恶劣的结局结束了，但这种风险管理的失误在繁荣期却是惊人地普遍。当年普遍存在一种观念， 认为银行的抗风险机制的质量就象汽车零部件一样达标甚高， 这个观念到此休矣。 因为结果发现， 有的银行距离高标准的差距大的惊人，正如摩根大通的行政长官Jamie Dimon所言。
The banks that fared better, including his own, relied largely on giving their risk-managing roundheads equal status with the risk-taking cavaliers. That was not easy. In happy times, when risk seems low, power shifts from risk managers to traders. Sales-driven cultures are the natural order of things on Wall Street and in the City. Discouraging transactions was frowned upon, especially at firms trying to push their way up capital-markets league tables. Risk managers who said no put themselves on a collision course with the business head and often the chief executive too.
At some large banks that subsequently suffered big losses, such as HBOS and Royal Bank of Scotland (RBS), credit committees, which vetted requests for big loans, could be formed on an ad hoc basis from a pool of eligible members. If the committee’s chairman, typically a business-line head, encountered resistance from a risk manager or other sceptic, he could adjourn the meeting, then reconstitute the committee a week or two later with a more pliable membership that would approve the loan.
Another common trick was for a business line to keep quiet about a proposal on which it had been working for weeks until a couple of hours before the meeting to approve it, so the risk team had no time to lodge convincing objections. Exasperated roundheads would occasionally resort to pleading with regulators for help. In the years before the crash the Basel Committee of bank supervisors reportedly received several requests from risk managers to scrutinise excessive risk-taking at their institutions that they felt powerless to stop.
Many banks’ failings exposed the triumph of form over substance. In recent years it had become popular to appoint a chief risk officer to signal that the issue was receiving attention. But according to Leo Grepin of McKinsey, “it was sometimes a case of management telling him, ‘you tick the boxes on risk, and we’ll worry about generating revenue’.”
Since 2007 banks have been scrambling to convince markets and regulators that they will continue to take risk seriously once memories of the crisis fade. Some are involving risk officers in talks about new products and strategic moves. At HSBC, for instance, they have had a bigger role in vetting acquisitions since the bank’s American retail-banking subsidiary, bought in 2003, suffered heavy subprime-mortgage losses. “Everyone should now see that the risk team needs to be just as involved on the returns side as on the risk side,” says Maureen Miskovic, chief risk officer at State Street, an American bank.
Ms Miskovic is one of an emerging breed of more powerful risk officers. They are seen as being on a par with the chief financial officer, get a say in decisions on pay and have the ear of the board, whose agreement is increasingly needed to remove them. Some report directly to a board committee as well as—or occasionally instead of—to the chief executive.
Miskovic女士是这类新型更有权势的风险官之一。他们正被视为与首席财务官相提并论，在薪酬决策上有发言权，董事会听他们的话，要罢风险官的职务越来越多地要经过董事会的同意。风险官的有些报告不但呈递给CEO 也直接呈递给董事会——偶然情况下， 这些报告不呈递给CEO, 但是直接给董事会。
For many, the biggest task is to dismantle cumbersome “silos”, says Ken Chalk of America’s Risk Management Association. Risks were often stuffed into convenient but misleading pigeonholes. Banks were slow to refine their approach, even as growing market complexity led some of the risks to become interchangeable.
Take the growth of traded credit products, such as asset-backed securities and CDOs made up of them. Credit-risk departments thought of them as market risk, because they sat in the trading book. Market-risk teams saw them as credit instruments, since the underlying assets were loans. This buck-passing proved particularly costly at UBS, which lost SFr36 billion ($34 billion) on CDOs. Many banks are now combining their market- and credit-risk groups, as HSBC did last year.
For all the new-found authority of risk managers, it can still be hard to attract talent to their ranks. The job is said to have the risk profile of a short option position with unlimited downside and limited upside—something every good risk manager should avoid. Moreover, it lacks glamour. Persuading a trader to move to risk can be “like asking a trapeze artist to retrain as an accountant”, says Barrie Wilkinson of Oliver Wyman, a consultancy.
所有新欣的风险经理机构依然难以吸引人才加入其中。这份职业本身的风险特征就像空头期权（头寸）一样，正回报有限， 负回报（即损失）无限，这是每一个优秀的风险经理人都应尽量避免的。此外，它缺乏魅力。说服一个交易员转而关注风险“犹如把一个空中飞人再培训成一个会计师。”，奥纬咨询的咨询师Barrie Wilkinson如是说。
A question of culture
Besides, there is more to establishing a solid risk culture than empowering risk officers. Culture is a slippery concept, but it matters. “Whatever causes the next crisis, it will be different, so you need something that can deal with the unexpected. That’s culture,” says Colm Kelleher of Morgan Stanley. One necessary ingredient is a tradition of asking and repeating questions until a clear answer emerges, suggests Clayton Rose, a banker who now teaches at Harvard Business School.
此外，建立牢固的风险文化要比授权给风险官要难得多。文化是个难以把握的概念，但它重要。“无论是什么引起下轮的危机，那将是不同的。因此你需要一些对不可预知事项应变的能力，那就是文化。” 摩根斯坦利Colm Kelleher认为。“其中一个必要的因素就是要有询问和不断怀疑的传统，直到一个清晰答案出现”，Clayton Rose—现在哈佛商学院教书的银行家如此建议道。
The tone is set at the top, for better or worse. At the best-run banks senior figures spend as much time fretting over risks as they do salivating at opportunities (see article). By contrast, Lehman’s Mr Fuld talked of “protecting mother” but was drawn to the glister of leveraged deals. Stan O’Neal, who presided over giant losses at Merrill Lynch, was more empire-builder than risk manager. But imperial bosses and sound risk cultures sometimes go together, as at JPMorgan and Banco Santander.
A soft-touch boss can be more dangerous than a domineering one. Under Chuck Prince, who famously learned only in September 2007 that Citigroup was sitting on $43 billion of toxic assets, the lunatics were able to take over the asylum. Astonishingly, the head of risk reported not to Mr Prince or the board, but to a newly hired executive with a background in corporate-governance law, not cutting-edge finance.
Another lesson is that boards matter too. Directors’ lack of engagement or expertise played a big part in some of the worst slip-ups, including Citi’s. The “sociology” of big banks’ boards also had something to do with it, says Ingo Walter of New York’s Stern School of Business: as the members bonded, dissidents felt pressure to toe the line.
Too few boards defined the parameters of risk oversight. In a survey last year Deloitte found that only seven of 30 large banks had done so in any detail. Everyone agrees that boards have a critical role to play in determining risk appetite, but a recent report by a group of global regulators found that many were reluctant to do this.
Boards could also make a better job of policing how (or even whether) banks adjust for risk in allocating capital internally. Before the crisis some boards barely thought about this, naively assuming that procedures for it were well honed. A former Lehman board member professes himself “astonished”, in retrospect, at how some of the risks in the company’s property investments were brushed aside when assessing expected returns. The survivors are still struggling to create the sort of joined-up approach to risk adjustment that is common at large hedge funds, admits one Wall Street executive.
Robert Pozen, head of MFS Investment Management, an American asset manager, thinks bank boards would be more effective with fewer but more committed members. Cutting their size to 4-8, rather than the 10-18 typical now, would foster more personal responsibility. More financial-services expertise would help too. After the passage of the Sarbanes-Oxley act in 2002 banks hired more independent directors, many of whom lacked relevant experience. The former spymaster on Citi’s board and the theatrical impresario on Lehman’s may have been happy to ask questions, but were they the right ones?
Under regulatory pressure, banks such as Citi and Bank of America have hired more directors with strong financial-services backgrounds. Mr Pozen suggests assembling a small cadre of financially fluent “super-directors” who would meet more often—say, two or three days a month rather than an average of six days a year, as now—and may serve on only one other board to ensure they take the job seriously.
That sounds sensible, but the case for another suggested reform—creating independent risk committees at board level—is less clear. At some banks risk issues are handled perfectly well by the audit committee or the full board. Nor is there a clear link between the frequency of risk-related meetings and a bank’s performance. At Spain’s Santander the relevant committee met 102 times in 2008. Those of other banks that emerged relatively unscathed, such as JPMorgan and Credit Suisse, convened much less often.
Moreover, some of the most important risk-related decisions of the next few years will come from another corner: the compensation committee. It is not just investment bankers and top executives whose pay structures need to be rethought. In the past, risk managers’ pay was commonly determined or heavily influenced by the managers of the trading desks they oversaw, or their bonus linked to the desks’ performance, says Richard Apostolik, who heads the Global Association of Risk Professionals (GARP). Boards need to eliminate such conflicts of interest.
Meanwhile risk teams are being beefed up. Morgan Stanley, for instance, is increasing its complement to 450, nearly double the number it had in 2008. The GARP saw a 70% increase in risk-manager certifications last year. Risk is the busiest area for financial recruiters, says Tim Holt of Heidrick & Struggles, a firm of headhunters. When boards are looking for a new chief executive, they increasingly want someone who has been head of risk as well as chief financial officer, which used to be the standard requirement, reckons Mike Woodrow of Risk Talent Associates, another headhunting firm.
同时风险团队需要增强。比如摩根斯坦利，其队伍已增至450人，差不多是2008年的两倍。全球风险专业人士协会去年也看到风险管理认证增加了70%.在金融招募中风险部门是最忙碌的，猎头公司Heidrick & Struggles的Tim Holt说到。现今董事会寻找新的行政总裁，逐渐想要那种曾有风险管理经验的和首席财务官的人选，这已成为挑选标准，另一猎头公司风险人才协会Mike Woodrow认为。
The big question is whether this interest in controlling risk will fizzle out as economies recover. Experience suggests that it will. Bankers say this time is different—but they always do.
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