Risk Management Lessons from the Global Banking Crisis of 2008

Senior financial supervisors from seven countries (collectively the “Senior Supervisors Group”) have issued a report that evaluates how weaknesses in risk management and internal controls contributed to industry distress during the financial crisis.

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, underlying weaknesses in governance, incentive structures, information technology infrastructure and internal controls require substantial work to address.

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.

The report may be downloaded at http://www.newyorkfed.org/newsevents/news/banking/2009/SSG_report.pdf