Journal Detail

Journal 5 – Risk

September 2002

It seems that both the number and variety of risks that senior financial executives face in today's environment is increasing exponentially. The crisis in confidence, caused by dubious accounting and due diligence processes, has made it difficult to trust those companies with which we do business.

But, the world's leading financial institutions don't just face a crisis in confidence, they also face a number of macro-economical and industry-specific risks that need to be managed effectively if they are to remain successful in the future. It is to help senior executives find solutions to these types of challenges that we have dedicated this issue of the journal to the topic of risk.

The three types of risk that this issue focuses on are: Macro-economic, regulatory, and operational.

At the highest level, the world's leading economies, and the institutions that operate within them, face the risk of balancing the obligations of the OECD countries with the income that can be generated from them. Financial institutions face a very difficult challenge in investing pensioner assets in a way that they can retire comfortably. This challenge has been made substantially more difficult because of the decision by a growing number of governments, in response to falling number of young people whose taxes can be used to pay for these pensioners, to liberalize their pension schemes and passing the burden of meeting these obligations onto the financial institutions. World renowned experts, such as Martin Feldstein and Norbert Walter, provide some prescriptive guidance on how the so-called pension time bomb can be managed.

The next layer of risk is also one that is introduced by the governments, regulatory risk. In this section we look at how regulations are further adding to the cost pressures facing financial institutions and how they can respond effectively.

In the last section, we focus on the risks inherent within most financial institutions, operational risk. This section provides the views of a number of leading industry figures on the growing importance of operational risk and how it can be managed.