The Challenges of Risk Management in Diversified Financial Companies

17 Pages Posted: 10 Nov 2005

See all articles by Christine Cumming

Christine Cumming

Federal Reserve Banks - Federal Reserve Bank of New York

Beverly Hirtle

Federal Reserve Bank of New York - Banking Studies Department

Abstract

In recent years, financial institutions and their supervisors have placed increased emphasis on the importance of measuring and managing risk on a firmwide basis - a coordinated process referred to as consolidated risk management. Although the benefits of this type of risk management are widely acknowledged, few if any financial firms have fully developed systems in place today, suggesting that significant obstacles have led them to manage risk in a more segmented fashion. In this article, the authors examine the economic rationale behind consolidated risk management. Their goal is to detail some of the key issues that supervisors and practitioners have confronted in assessing and developing consolidated risk management systems. In doing so, the authors clarify why implementing consolidated risk management involves significant conceptual and practical difficulties. They also suggest areas in which additional research could help resolve some of these difficulties.

Keywords: risk management, banking, consolidation, mergers

JEL Classification: G21, G28

Suggested Citation

Cumming, Christine and Hirtle, Beverly, The Challenges of Risk Management in Diversified Financial Companies. Economic Policy Review, Vol. 7, No. 1, March 2001. Available at SSRN: https://ssrn.com/abstract=844215

Christine Cumming

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Beverly Hirtle (Contact Author)

Federal Reserve Bank of New York - Banking Studies Department ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7544 (Phone)
212-720-8363 (Fax)

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