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Risk Management

An Early Call for Bank Counterparty Awareness

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February 26, 2015

About 13 years before the financial crisis, International Treasurer suggested looking closer at how banks manage risks.

“Recent events warrant more than a glance at bank counterparties' risk management prowess.” This was the sub-headline of a story about how banks were getting attention from rating agencies because of “the depth and duration earnings downturns.”

A little over a decade later companies really saw how banks managed – or didn’t manage – their risks. Some of the companies mentioned in the article, “Banks & Derivative Counterparty Risk” from April 3, 1995, didn’t survive the crisis (the others were just swallowed up on banks’ journey to to-big-to-fail infamy). Names like Bear Stearns, CS First Boston, PaineWebber, and Salomon do harken back to simpler times (and in the case of Bear Stearns, utter failure times).

And International Treasurers’ suggestion that “banks should see it in their interest to disclose information to the market” never really took hold too deeply. “What they disclose should demonstrate the effectiveness of their risk management and control infrastructure. Otherwise, investors, creditors, and customers are left to assume the worst when confronted with information about ratings downgrades and surveys suggesting systems inadequacies.” If only. 

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