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Lessons From The 2008 Crisis

September 2013

Debra Baker

Business Executive, Global Risk Solutions, Asset Servicing

"When it comes to managing risk," Debra Baker says, "there's not only been an evolution, there's been a revolution." Debra, who heads Global Risk Solutions for BNY Mellon, is talking about the sea change that occurred after the financial meltdown of 2008. The event transformed the traditional view of risk management held by participants.

How The Market Viewed Risk Historically

Sellers and buyers looked at risk differently, prior to 2008. One side focused more on historical analysis, while the other looked closely at forward measures and exposures. Now, according to Debra, "there's just as much focus, if not more, on risk (by both sides)." Her suggestion on managing risk in the new environment may be summarized as follows:

Five Ideas On Managing Risk Going Forward:

  • Develop a risk plan for your company – Determine the risk appetite for the business, decide on the type of risk culture you'd like to build and design a plan for handling different types of risk.
  • Manage both sides of the equation – Focus on risk, from both the asset and liability side of the equation. "It's really the ability to understand where your exposures are and the possibility to mitigate, measure and manage any downside impact to your plan or fund," Debra says.
  • Run scenarios to try and predict what might happen – The industry has gone from worrying about how to recover from a failure to trying to prevent one from happening. It's now about being predictive and running scenario analysis, stress-testing and shocking a portfolio to see how it would perform in a crisis.
  • Find local expertise – "You can have the best tools and you can have the best technology and infrastructure," Debra says, "but at the end of the day, you really do need experts who are on the ground in all the different regions to help you understand the implications of local regulations."
  • Keep up with industry developments – Share best practices, align with industry goals and understand the landscape. "Thought leadership, especially in this environment, is critical," says Debra.

She also thinks it is important to work with clients, regulators, and industry stakeholders in an advocacy role, wherever and whenever you can, to help shape local requirements.

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