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Banking organization proposes stronger risk focus.

SOME OF THE WORLD'S FINANCIAL SERVICE ORGANIZAtions might get an extra dose of risk management in the wake of recent downturns in the mortgage and credit markets. The Institute of International Finance (IIF) has released a report acknowledging problems in managing risks and proposing that banks focus on self-regulation to avoid tighter government regulation. The IIF's proposal comes on the heels of a U.S. Securities and Exchange Commission (SEC) report that identifies risk management practices that may have contributed to positive market performance during volatile financial markets in 2007.

According to the IIF's report, the world's banks and other financial institutions must "clean their houses first" to restore public confidence in them, rather than leaving the task to regulators. Along these lines, the report recommends banks establish better governance practices and build a stronger risk culture. "Risk management is much more than just a monitoring function," says Richard Waugh, president and chief executive officer (CEO) of Scotiabank in Toronto and co-chair of the IIF's Committee on Market Best Practices, which wrote the report. "It is a core responsibility of the CEO and all executive management. Firms need to build risk management into their overall business strategies."


The SEC's report, Observations on Risk Management Practices During the Recent Market Turbulence, also highlights senior management's oversight role in assessing and responding to the changing risk landscape. The report, which was produced in collaboration with regulators from Frances, Germany, Switzerland, and the United Kingdom, identifies such oversight as one of three practices that may have helped firms weather the financial market turmoil through the end of 2007. The second practice is the effectiveness of market and credit risk management practies in understanding and managing the risks in retained or traded exposures. The third practice is the effectiveness of liquidity risk management practices in assessing vulnerability to this type of this in a stressed environment and taking appropriate action to mitigate it.

The IIF's interim report on market best practices is available from the IIF Web site at To obtain the SEC report on current risk management practices, visit the SEC's Web site at
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Title Annotation:UPDATE; Institute of International Finance
Author:Cain, A.
Publication:Internal Auditor
Geographic Code:1USA
Date:Jun 1, 2008
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