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=== What to do === | === What to do === | ||
All of this hindsight-coloured hand-wringing is good sport, but what to do about it? | All of this hindsight-coloured hand-wringing is good sport, but what to do about it? Regular readers might not be surprised to hear the JC say that deprogramming the steampunk machine and asking people to use their experience, judgment and intuition to ask unusual questions. | ||
Imagine a weekly operational risk meeting with a standing agenda to discuss cash breaks, outstanding undocumented confirms, position concentration across the book. All kinds of metrics will be presented and analysed, laid out in graphs, charts and data tables. A dashboard of “high risk” clients, derived from these operational metrics, may be presented, but the [[RAG]] array will read uniform green — perhaps studded with the odd amber — an easily-addressed talking point included “for good order” but, we are assured, no materially elevated risk of loss. | |||
It will be this because we are acculturated to be in control, for systems to be operating, in good standing, and all engines ticking along without significant strain. | |||
You ask, “did [[Malachite]] appear on any risk reports in the two years leading to its collapse? Did [[Archegos]]? Did [[Amaranth]]?” | |||
But these are rhetorical questions, and you don't ask them lest ''you'' become the bad apple. | |||
But imagine if the agenda were different: ''who are your top five riskiest clients''? Who are you ''most'' worried? Consider size, trading history, operational sophistication, timeliness, responsiveness. | |||
Who, in your bones, makes you feel most nervous. Are they the same clients as last week? Last month? | |||
Then ask sales: ''who is printing the most business''? Who is generating the most revenue? Whose portfolio is doing the best? Who in your bones do you trust the least? | |||
Are they the same clients as last week? Last month? | |||
Ask risk: who has them most leverage? Where are the concentrated positions? Who has the thinnest liquity? The least equity? Whose docs, and margin lockups are the most severe? | |||
Have all risk control and business groups discuss these observations ''together''. Do it in person. No decjs, no blackberries, no interruptions. Require everyone to engage. Everyone should contribute. Every one should know each others fundamental parameters. Everyone should be interested. Ask: is these are our biggest risks, what would we do differently? | |||
The point of a risk meeting is surely not to persuade the steerco that all is ''well'' —, that [[RAG]]s are green — but ''where the risk is most likely to be''. We should be ''looking for'' amber lights, not ''burying'' them. If you can’t think of any, that is not a sign all is well: it is a sign ''you are not doing your job''. | |||
There ''is'' risk. Have a considered theory as to where it might be | |||
{{sa}} | {{sa}} | ||
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*{{fieldguide}} | *{{fieldguide}} | ||
*[[Rumours of our demise are greatly exaggerated]] | *[[Rumours of our demise are greatly exaggerated]] | ||
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