Risk Management, PRMIA

There was talk about creating a bad bank in the US as well that seems to have gone quiet now, given that TARP money is being given back by some firms. Last week a German draft legislation was introduced that allows the country’s state run banks, Landesbanks to move illiquid assets into bad banks. This sounds slightly familiar - I remember 2 govt. entities in Malaysia - Danamodal and Danharta that were created with asset restructuring charter to take on the troubled assets of the country’s financial firms battered by the 1997 Asian currency crisis. In my humble opinion, these 2 institutions actually did quite well in terms of stabilizing the financial system.

Given the scale and enormity of the systemic risk today, the questions that comes to a simple mind like me are - what do Risk managers in these bad banks do ? Is their approach and function any different from a good bank ? Are they starting from a different baseline and different benchmark ? What kind of MTM, pricing and valuation curve would they use ? Would there be a different counterparty risk criteria? Also would risk managment be more short term view as in terms of an interim caretaker or a liquidator mode? Questions, Questions and more questions. Still seeking answers but does make me think that the future Risk courses need to include some learnings on managing risk in bad banks,if that terms continues to survive post crisis.