2009-06-10

By Editor, CIR

Despite the credit crunch global financial institutions still have critical gaps in their risk management practices, according to a survey of more than 100 firms by Deloitte.

It reports that many still fail to carry out independent checks on financial models or regular stress tests for risky structured products. Around half the financial institutions surveyed by Deloitte admitted they did not perform independent checks on their financial models and two in three of these had no immediate plans to do so.

Fewer than one in two firms had made risk-management responsibilities an integral part of performance goals and compensation decisions for senior management. More than 40% of financial institutions did not conduct stress tests for their structured product exposures, such as collateralised debt obligations (CDOs), which have created large losses for many firms.

Even where firms did stress test their structured products, only 17% did so daily while two in three tested on no more than a quarterly basis.

"The past two years have demonstrated the need for enhanced risk management capabilities at financial institutions, and the challenging times that undoubtedly lie ahead make it an even greater priority," said Edward Hida, head of Deloitte's global financial services industry practice.

"Given the pace at which markets move, institutions may face regulatory or other pressure to perform stress testing more frequently."

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