The Rise of Risk Management: Basel and Beyond July 31, 2002
High-quality risk management is increasingly important to the health of the global financial system. The largest financial institutions-banks, brokerage firms, government sponsored enterprises (GSEs), and others-are becoming larger, more complex and vital to the stability of the entire global financial system. How these institutions manage risk will impact their own bottom
lines as well as the performance of the domestic and world economies.
With a second Basel capital accord on the horizon, bank regulators stand poised to embrace the culture of risk management in new ways. Under the proposed new accord, regulators' decisions about the capital adequacy of the largest banks would be based on their evaluations of bank risk
management. As internal risk management systems enter the regulatory arena, the competitive dynamic between large banks and small, and between banks and non-banks, may change; traditional notions of bank capital adequacy may be re-examined; and the disclosure of new risk-
related information may increase the efficacy of market discipline.
The discussions at this symposium will revolve around three basic questions:
How well have risk management systems performed in the volatile economic environment of recent years?
What are the challenges for risk management as the new Basel Capital Accord moves towards implementation?
What issues do the financial regulators need to address as they implement a risk management-driven approach to regulation?