Not a decade old in 1994, the International Swaps and Derivatives Association was beginning to see how swaps were becoming a big part of corporate management and in particular, managing risk.
In the August 8, 1994 issue of International Treasurer, we wrote about how ISDA had highlighted the importance of “independent risk oversight” and that “risk management is something it can teach regulators and corporate treasurers something about.”
This of course was on the heels of several high profile derivatives losses and other problems in managing risk at corporations. And at the time, it was important that it do just that. As a result of some of the more notable derivative debacles, including those at Metallgesellschaft, P&G, and Gibson Greetings (among others), regulators were chomping at the bit to rein in corporate swap use.
Some corporates were happy to sit on the sidelines in disinterest, but others saw a threat to how they manage risk. While a majority of corporates are stepping back from, or keeping quiet about their derivatives activities for the moment, a small number are choosing … keep regulation/ legislation from being established that would curb innovation in derivatives markets that they clearly benefit from.”
A few regulators today might think back to that time and feel they should have pressed harder, given 2008. Still aside from the economic impact of the financial crisis, corporates didn’t lose much money due to derivatives. They learned their importance 20 years ago and, after a few missteps by peers, got their derivative houses in order.
InternationalTreasurer1994Aug8 Risk Management by itreasurer