Magazine article The RMA Journal

On the Constant Lookout for Risk: The New York Chapter's: 2018 CRO Round Table

Magazine article The RMA Journal

On the Constant Lookout for Risk: The New York Chapter's: 2018 CRO Round Table

Article excerpt

FOR DAVID WILDERMUTH, deputy chief risk officer, Goldman Sachs, one of the exciting aspects of working in risk management is "everything in the newspaper is relevant."

"So many things can go wrong in the world today," said Wildermuth, a panelist at the New York Chapter of RMAs recent Chief Risk Officers Round Table. On his commute each morning, he said, he is apt to "fire off 30 questions to [staff]" on whatever the headlines of the day are. "Exactly what is our exposure to that?" he might ask, or "How are we prepared for this?"

In addition to assessing the risk in world news, Wildermuth and fellow panelists at the April 18 event at the PricewaterhouseCoopers offices on Madison Avenue in New York discussed technology, the current regulatory environment, and what it takes to thrive in risk management today.

"As risk professionals, we have predicted 50 of the last five crises," Wildermuth joked. "We are constantly worrying about things that end up not happening. We have had a lot of market disruptions that we thought would have a longer-term impact, such as Brexit, the U.S. election, and potential trade wars.

"The market has pretty much looked past those," he said. "But one of these times the market will react."

A possible development that continues to concern him, he said, is the impact that rapidly rising interest rates could have. Wildermuth said he keeps a newspaper article on his office wall to remind him that what goes up must come down, and vice versa. The article "shows interest rates over the last 200 years. You can see the 35- to 40-year cycle rise from 2% to 14%. Now it has been a 35-year cycle of interest rates going from 15% down to 2%." The piece reminds him that "rates will not always stay at these levels" and that the current low-rate environment can cause complacency.

Stuart Lewis, chief risk officer and member of the management board at Deutsche Bank, echoed Wildermuth. He noted that rates have "historically followed economic growth" but there is "a huge gap between where rates are today and where growth is."

Another concern is China's economy, which is "leveraged at over 200% debt to GDP. China is trying to unravel that," Lewis said. "Depending on how quickly they try to, that could lead to some pretty large interest rate increases" affecting the global economy as well as China.

As for trade wars, Lewis said, "protectionism comes in two forms--trade protectionism but also tax protectionism. If you look at the impact of a $50 billion tariff war between China and the U.S., that is not terminal for the U.S. economy. It might have a 0.1% or 0.2% impact on growth. If the number is a lot bigger--say, $150 billion--it could have a 0.5% or 0.75% impact.

"The bigger question is tax protectionism," he said. "I don't think any OECD [Organisation for Economic Co-operation and Development] country over the last 20 years has not gradually lowered its tax rate. That is a sizable threat to the global economy. You can see how the EU reacted when the U.K. declared early on in Brexit negotiations it would move to have a far lower tax rate than the rest of the EU. That is an area which does not get enough focus."

Lewis also said the Eurozone's trade surplus is roughly double that of China's. If President Trump makes moves to address that, Lewis said, it "could be an interesting impact on the global economy as well."

Phillippa Girling, senior vice president and chief risk officer, Investors Bank, said news that portends disintermediation puts her on alert. "Are Walmart and Amazon about to become banks?" That type of report is "one of the things we look for every day," she said. "Who is disrupting and moving into our area and are we ready to respond? Do we understand our competitive advantage?"

The headlines recently have included several looks back, 10 years later, at the financial crisis. Round table moderator Dietmar Serbee, partner at PwC and co-chair of RMAs New York Chapter, asked if the industry was safer compared to the dark days of 2008. …

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