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September 19, 2008
Pursuit of Absolute Risk Mitigation
In governmental organization the costs of preventing or reducing corruption are not balanced against the gains with a view to finding an optimal investment. Instead corruption is thought of (when it comes under notice) as something that must be eliminated no matter what the cost. Edward C. Banfield, Corruption as a Feature of Government Organization, 1996.
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United States Department of the Treasury Secretary Henry Merritt Hank Paulson has fired AIG CEO Robert B. Willumstad, after a week in which Lehman Brothers has fallen, and mother Merrill has been married off again.
There is no lack of irony that AIG, which had avoided nationalization by Mao by leaving Shanghai in the 1940s, found itself taken over by the United States under 43.
Each day on television, leading government and industry authorities are calling for better risk management, and the failures of the financial system are being woven into Main Street conversations.
This week in Atlanta, as I witnessed a couple discuss debt insurance and government bailouts over breakfast at a table next to mine, the pendulums bob reached its peak, lost velocity, and began to swing in the other direction.
Everywhere pundits are calling for better risk management but as the opening quotation from Anechiarico and Jacobs' case study The Pursuit of Absolute Integrity, How Corruption Control Makes Government Ineffective shows, better risk managagement is not the issue. The FBI is investigating fraud.
In New York, risk managers working at financial institutions are fully engaged in battle, managing an environment that shifts daily, and too busy to do anything else. Registration for an upcoming Operational Risk Forum put together by PRMIA New York Steering Committee member Philippa Girling is only a fraction of what it was last year, despite a terrific program (see below).
In Washington, regulators are just digging in to the buffet. A similarly structured Forum (see below) slated for Monday organized by PRMIA Washington Regional Director Christopher Whalen has enjoyed record pre-registration.
With the pendulum now swinging in the other direction, it is important to keep perspective on where we are headed.
1) Elimination of risk comes at the cost of growth. This summer I managed a team of nearly 90 people who undertook threat assessments and prepared risk management plans (incl. evacuation plans) in advance of the 2008 Beijing Summer Olympic Games. This team went on to provide executive protection to VIPs, operate a 24-7 Security Operations Center where emergency calls were managed, and provide other liaison services to members of the Olympic Movement. While Beijing was observed to have done an excellent job of reducing the likelihood of a recurrence of bombings that occurred in Atlanta around the 1996 Summer Olympic Games (by securing the Olympic Green and key routes on opening night with over 200,000 army officers covering within eyesight of each other, and in the nights thereafter with a significant local law enforcement presence) or 1999 riots at the WTO Ministerial Conference in Seattle (by enhancing control over secure protest areas to include background screening of applicants), they came at a cost of discourse and innovation (empty protest areas) and lost revenue (low attendance within the Olympic Green).
2) A regulatory approach to the process of risk management (and institutions that take risk will be ineffective. As Felix Nigro stated in Public Personnel Administration (1959): Waging this type of battle becomes a habit that tends to continue long after the enemy is routed or voluntarily retires. Since civil service appropriations tend to be limited in the first place, concentrating resources on combating an imaginary foe means neglecting the development and expansion of urgently required or highly desirable activities, such as more vigorous recruiting, personnel research, and training.
Overlapping regulatory and enforcement regimes were unable to correct what the Daily News a blatant disregard for even the most basic fire safety rules in advance of the tragic 2007 fire at 130 Liberty Street. New Yorks bureaucracy (one of only six in America at the time with relevant focus and structure) was also unable to address construction site risks that lead to high profile construction crane collapses; as a result of failures by operators to comply with manufacturer specifications or properly train employees about job site hazards while allowing these hazards to exist.
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As promised here is a record of the scheduled forums, followed by Merriam Websters definitions of odds and risks.
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DC
Opening Remarks by Chris Whalen, Institutional Risk Analytics, PRMIA DC Steering Committee
Panel I -- 9:15-10:30 -- Adding Value Through Operational Risk Management: Andy Leonard, SVP, Fannie Mae; Mike Yamamoto, MVP of ERM, Capital One; Aniruddho Sanyal, SunGard; Jan Voigts, FRBNY; David Cox, Deloitte (Moderator)
Panel II -- 10:45 -- 12:00 -- Op-Risk & the Payments System: Determining Risks and Mitigating Exposure: Hans Cobben, SunGard; Victoria Garrity, FRB Boston; Hugh Kelly, KPMG; Alfred Seivold, Federal Deposit Insurance Corp (Moderator);
Luncheon -- 12:00-1:45
* Introduction by Syed Ahmad, Federal Housing Finance Board, PRMIA DC Steering Committee
* Keynote address by Ali Samad-Khan, Principal, Towers Perrin
Changing the Risk Management Paradigm
Was the sub-prime crisis a market risk event? a credit risk event? or an operational risk event? Or was it an event caused by a series of operational failures which manifested themselves in credit and/or market losses? If the latter, what fundamental changes need to be made to the way we measure risk in order for our data and models to be aligned with management requirements?
Panel III -- 2:00-3:30 -- Financial Institution Security in the Age of State-Sponsored Terrorism: Celina Realuyo, National Defense University; James Routh, Depository Trust & Clearing Corp; Gary Owen, SVP, Citigroup; James P. Tunkey, Director-Americas, IONASIA/PRMIA NY Steering Committee (Moderator).
Concluding Remarks
Reception
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NEW YORK
Feature speakers include:
• Philippa Girling, Head of Banking and Financial Services Group, Garrity, Graham, Murphy, Garofalo & Flinn, P.C.
• Paul McGonagle, President and Chief Executive Officer, Exporters Insurance Company
• Rita Previtali, Consultant, Freeborders Consulting Formerly in charge of Operational Risk Control in the Operations division of Equity Derivatives for Societe Generale
• Preston Thompson, Assistant Vice President, Federal Reserve Bank of Boston
Agenda
8:00 – 8:30 a.m. Registration, Continental Breakfast and Exhibits
8:30 – 8:35 a.m. Welcome Remarks
• James Tunkey, Regional Director, PRMIA New York Chapter
8:35 – 9:15 a.m. Best Practices: Top 10 Things You Need to Know
• Philippa Girling, Head of Banking and Financial Services Group, Garrity, Graham, Murphy, Garofalo & Flinn, P.C.
9:15 – 10:15 a.m. Panel: Op Risk Lessons Learned this (Volatile) Year
Moderated by Eva Leighton, Managing Director, ICG Operational Risk, Citi
• Bill Savage, AVP Enterprise Risk Management, The Hartford Financial Services Group
• Spyro Karetsos, Vice President and head of the Americas in Operational Risk Management and Analysis, Goldman Sachs
• Siobhan Dunn, Head of Operational Risk – Americas, Dresdner Kleinwort
• Jane Carlin, Global Head of Operational Risk Management, Business Continuity Management, Information Security and Risk and Insurance Management, Morgan Stanley
10:15 – 10:30 a.m. Break and Exhibits
10:30 – 11:15 a.m. Keynote Address
• Paul McGonagle, President and Chief Executive Officer, Exporters Insurance Company
11:15 – 12:00 p.m. Op Risk in Non-Financial Services Industries: Lessons learned
Moderated by Prodyot Samanta, Founder, ThirdEye RiskInsights
• Christopher Hart, Deputy Director, Air Traffic Safety Oversight, Federal Aviation Administration
• James Tunkey, Chief Operating Officer, I-OnAsia Limited
12:00 – 1:30 p.m. Luncheon with Keynote Speaker
1:30 – 1:45 p.m. Break and Exhibits
1:45 – 2:30 p.m. Regulatory Keynote Speaker
• Preston Thompson, Assistant Vice President, Federal Reserve Bank of Boston
2:30 – 3:30 p.m. Regulator Panel: Top 10 Things You Should Do
Moderated by Steve Lindo, Executive Director, PRMIA
• William Gilroy, Director of Risk Group, New York Stock Exchange
• Eric Caban, Team Leader of Operational Risk Governance, Federal Reserve Bank of New York
3:30 – 3:45 p.m. Break and Exhibits
3:45 – 4:30 p.m. Analysis of SOC/GEN: Lessons Relearned
• Rita Previtali, Consultant, Freeborders Consulting
4:30 – 5:00 p.m. Cocktail Reception sponsored by SunGard
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Main Entry: odds
Date: circa 1520
1 archaic : INEQUALITIES obsolete : degree of unlikeness
2 a: an amount by which one thing exceeds or falls short of another b (1): a difference favoring one of two opposed things (2): a difference in terms of advantage or disadvantage c (1): the probability that one thing is so or will happen rather than another : CHANCES (2): the ratio of the probability of one event to that of an alternative event
Main Entry: risk
Etymology: French risque, from Italian risco
Date: circa 1661
1: possibility of loss or injury : PERIL2: someone or something that creates or suggests a hazard3 a: the chance of loss or the perils to the subject matter of an insurance contract ; also : the degree of probability of such loss b: a person or thing that is a specified hazard to an insurer c: an insurance hazard from a specified cause or source 4: the chance that an investment (as a stock or commodity) will lose value.
Posted by jtunkey at September 19, 2008 05:49 PM
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