Yesterday, in a speech before the Council of Foreign Relations, Federal Reserve Board Chairman Ben Bernanke used “systemic” or “systemically” 35 times!
When talking about systemic risks he referred to risks that affect the financial system and financial markets broadly; he also used systemic to refer to institutions whose sole failure due to their size or interconnections to other institutions would create an unacceptable risk to the rest of the system. To monitor systemic risk he proposed that Congress “direct and empower a governmental authority to monitor, assess, and, if necessary, address potential systemic risks within the financial system.”
Having such an authority monitoring system-wide risks sounds like a good idea, doesn’t it? But think about this — the government risk authority would mean even more oversight in large financial institutions. With those hundreds of government supervisors already working inside large banks, will come government risk managers — making sure that the bank itself doesn’t become a systemic risk. Business and risk management decisions all will need to be made with “what will the government risk manager think” in mind.
Standard and Poor’s enterprise risk management ratings questions will be a trivial exercise compared to what large banks will face with this new government oversight. How many large banks’ risk management programs will stand up to such scrutiny today? Will this mean the end of large financial institutions?
Under this proposed risk management regulatory regime, too big to fail, may mean too big to exist!
As co-chair of Gartner’s Risk Management and Compliance Summit, if this new emphasis on risk management by the Fed and government risk management overseers are prospects that concern you as an IT risk manager at a financial institution, I’d like to invite you to come to Gartner’s Risk Management and Compliance Summit, 29 April to 1 May, in Chicago. We have a special financial services professional track at the summit. While there, talk to our financial services experts on risk management, Vincent Oliva, Doug McKibben, and Mary Knox — and also meet Steve Dreyer who is the lead analyst for Standard and Poor’s Enterprise Risk Management ratings program.