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Risk

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Risk

The New Management Imperative in Finance

Bloomberg Press,

15 min read
10 take-aways
Audio & text

What's inside?

Introducing the newest — and most important — financial currency: Risk.

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Editorial Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

Technological advances and the development of innovative financial instruments have given finance pros the ability to measure and control risks that in past generations were impossible even to isolate and identify. The limits and dangers of this new capacity have already been displayed in several financial crises in the late 1990s, in which highly touted risk-management tools fell short of expectations, costing the firms that relied on them billions of dollars. Against this backdrop, James T. Gleason’s lucid dissection of the evolution and potential of risk management is an invaluable resource. Gleason lays out how current risk-management practice came to be, identifies types of risk and the tools that are being used to control them, and lays out a framework for implementing global risk management strategies. Though much of the writing presupposes a basic knowledge of finance, getAbstract recommends Risk to experts, who will benefit from the book’s historic perspective, and lay people, who will be enlightened to one of the most important concepts of the 21st century economy.

Summary

The New Strategic Imperative

The capital markets have changed more in the last 25 years than they had in all of previous human history. Deregulation, the dissolution of many sovereign barriers to capital movement and new technology has driven the change that has squeezed all but the largest financial intermediaries.

These changes have forced both investors and intermediaries to become much more sophisticated. New quantitative models help managers test the risks and returns of transactions in advance. Even gaming models, adapted from gambling, help managers assess risk.

Risk is the new strategic imperative in financial management. Financial firms have become intermediaries for risk. To win in the new risk markets, dealers must measure, price and manage financial risks much more effectively than they do now. The processes and techniques for doing this, global risk management (GRM), can align the incentives and activities of everyone in a firm, improve allocation of resources and improve returns. So far, GRM is more a vision than a reality. The techniques are still being validated. But the early results are compelling.

Two recent theories form the basis...

About the Author

James T. Gleason IBM Consulting has been a risk-management consultant for more than 15 years. He has worked at firms including Coopers & Lybrand and Arthur Anderson & Co., and has been an independent consultant to Citicorp, First National Bank of Chicago, ING-Barings (Netherlands) and Rabobank (Netherlands). He is a contributor to Risk Magazine.

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