25 November 2009

Senior financial supervisors: how risk management weaknesses and internal controls contributed to industry distress during financial crisis

The report concludes that, despite firms’ recent progress in improving risk management practices, substantial work is required to address underlying weaknesses in governance, incentive structures, information technology infrastructure and internal controls.

The report Risk Management Lessons from the Global Banking Crisis of 2008 reviews in detail the funding and liquidity issues central to the recent crisis and explores critical areas of risk management practice in need of improvement across the financial services industry. The report concludes that, despite firms’ recent progress in improving risk management practices, substantial work is required to address underlying weaknesses in governance, incentive structures, information technology infrastructure and internal controls.

The observations and conclusions in the report reflect the results of two initiatives undertaken by the SSG. These initiatives involved a series of interviews with firms about funding and liquidity challenges and a self-assessment exercise in which firms were asked to benchmark their risk management practices against a series of recommendations and observations taken from industry and supervisory studies published in 2008.

This report represents a joint effort on the part of nine supervisory agencies, including the Canadian Office of the Superintendent of Financial Institutions, the French Banking Commission, the German Federal Financial Supervisory Authority, the Japanese Financial Services Agency, the Swiss Financial Market Supervisory Authority, the U.K. Financial Services Authority and, in the United States, the Office of the Comptroller of the Currency, the Securities and Exchange Commission and the Federal Reserve. These initiatives were conducted to support the priorities of the Financial Stability Board whose mission is to address vulnerabilities affecting the financial system and to promote global financial stability.

 

Full report