With Derivatives Losses out of the Headlines, Have Financial Institutions Put the Development of Better Risk Management Systems on the Back Burner?

American Banker, March 4, 1996 | Go to article overview
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With Derivatives Losses out of the Headlines, Have Financial Institutions Put the Development of Better Risk Management Systems on the Back Burner?


William Ferrell

President,

Ferrell Capital Management

Greenwich, Conn.

Absolutely not. The global elite of financial institutions have for some number of years now had a considerable amount of resources dedicated to the quantification and analysis of risk. At this point, that art and science is quickly spreading to the superregional and regional. institutions because of two factors.

One is that the losses of 1994 and early 1995 highlighted the need to have such practices in place for better risk control and, therefore, better business management. Second, regulators have required banks to have appropriate risk management and control techniques in place in order to get approval for the businesses that they wish to engage in that take market risk.

So that process is continuing, and considerable time and effort are being spent on trying to spread the best practices of the industry among a wider group of financial institution constituents.

***

Jonathan Levin

Director of U.S. operations,

Kamakura Corp.

New York

That has not been my impression. Everybody that we've spoken to is examining it.

One of the big reasons why there has been so much derivatives loss is that the financial institutions - and to a lesser extent the corporations really don't have the proper tools to fully analyze and understand the potential risk associated with their derivatives exposure.

Putting derivatives software systems and analytical tools on the back burner just continues to create significant exposure to derivatives risk.

We're strong believers that in this Bankers Trust-Procter & Gamble (situation), clearly Bankers Trust had very aggressive sales people.

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