Systemic Risk Monitoring is Inadequate, Say Risk Management Experts
May 7, 2010
Collecting system-wide data is critical to monitoring systemic risk, say chief risk officers, who also agree that current risk monitoring resources are inadequate, and that efforts to standardize and aggregate this type of data would significantly improve systemic risk management.
The conclusions are part of survey results released Thursday by the Professional Risk Managers’ International Association (PRMIA) and the CE-NIF (Committee to Establish the National Institute of Finance).
The survey, conducted in March and April, included 98 U.S.-based C-suite chief risk officers and their direct reports.
Over 80 percent of the risk experts say they consider current systemic risk monitoring resources are inadequate. Nearly three-fourths also said that system-wide data is critical to monitoring systemic risk, while a further 73 percent believe that standardized data protocols would be valuable.
Nearly two-thirds of the experts also said that government efforts to collect system-wide data would be a major undertaking, but doable and worth the effort
The experts also broadly agree that future efforts to standardize and aggregate this type of system-wide data would significantly improve systemic risk management.
The creation of an Office of Financial Research, tasked with aggregating and analyzing system-wide financial data, is one of the provisions in the regulatory reform legislation currently being debated in the Senate.
“Senior risk managers have been voicing their concerns about untreated financial systemic risk for many months,” said Steve Lindo, Executive Director of PRMIA. “With regards to managing system-wide risk, the financial sector is behind other industry sectors which have already established systemic risk management initiatives.”
“This confirms the view that the most senior risk managers …support the responsibilities assigned to the Office of Financial Research and recognize the value of its creation,” added Dr. Allan Mendelowitz, speaking on behalf of the CE-NIF.
“The recent financial crisis spotlighted significant weaknesses in the capabilities of regulators,” he added. “In response, the Committee to Establish the National Institute of Finance has been working to equip financial regulators and policy-makers with much better detailed data and the improved analytical capacities that are needed to understand and respond to future threats to financial stability. We are greatly encouraged by the broad and strong support for this effort on the part of financial risk management executives.”
PRMIA is a non-profit, member-led association with 60 chapters around the world. CE-NIF is a non-partisan, volunteer group formed by current and former financial executives. It includes sic Nobel economics laureates.