Professional Risk Manager (PRM) Designation
Case Studies and Standards
Updated August 4, 2021
The following resources are publicly available. For individuals seeking the PRM Designation, the following case studies have been identified by the PRMIA Education Committee for inclusion in the 2021 examination program.
These reading list items should be combined with the Professional Risk Managers' Handbooks to prepare for the exams.
Additional case studies will be published each calendar year for the PRM examination program. Current PRM candidates will receive notification via email from [email protected] for all updates study materials. Click here to view the case study lists from prior years .
Sample test questions are now available.
Case Studies
Standards and Practices
- Group of Thirty Best Practices, Global Derivatives Study Group. July 1993, ISBN 1567080901
- Principles of Good Governance Principles, PRMIA, September 2009
- Standards of Best Practice, Conduct and Ethics, PRMIA Ethics Committee, PRMIA, September 2009
- Bylaws of Professional Risk Managers' International Association, PRMIA, October 2020
Case Study Overview
| Unauthorized Trading |
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Barings
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- Unauthorized trading in derivatives by Nick Leeson in its Singapore subsidiary completely wiped out the bank’s capital of £200 million
- Failures: No segregation of duties. Internal audit report not heeded. Doubts raised by Singapore Futures Exchange (SIMEX) ignored. Excessive profits not investigated.
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| Metallgesellschaft
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- Hedges adequately transferred the market risk created by their underlying commercial forward contracts, but MGRM exposed themselves to risk of not being able to fund margin calls if the value of the hedges fell.
- Company held enormous and out-sized positions in the markets, hence liquidity was insufficient to allow timely risk management
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| Product Design and/or Sales Practices |
| Bankers Trust
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- Bank sued by four of its major clients, who asserted that Bankers Trust had misled them with respect to the riskiness and value of derivatives that they had purchased from the bank.
- Reputation damage greater than financial loss
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| Orange County
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- This prosperous California county filed for bankruptcy after losing $1.6B on leveraged derivatives transactions involving its major investment pool.
- Supervision of the County treasurer lacked financial sophistication and received inadequate reporting; Treasurer’s superior performance in prior years resulted in excessive trust.
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| Credit Boundary Events |
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Fannie Mae/Freddie Mac
- Billions in US gov’t support
- 2008
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- Fannie Mae and Freddie Mac placed under conservatorship by the Federal Housing Finance Agency (FHFA)
- Risk models did not reflect loosened underwriting standards of mortgage originators
- Political pressure to facilitate origination of loans to increasingly risky customers
- History of Fannie and Freddie resulted in confusion about implicit gov’t guarantee
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| Washington Mutual (WAMU)
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- The company’s biggest stumble “was a late entry into the subprime market as a way to juice the once fast‐growing company’s sluggish earnings,” The Wall Street Journal noted. Ill fated acquisitions in the sub-prime space exacerbated that move.
- In September 2008, regulators seized WaMu while the bank’s management team was on a commercial air flight.
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| Liquidity Mismanagement |
| Long Term Capital Management (LTCM)
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- Liquidity squeeze of a major hedge-fund via margin calls on trading positions; pricing transparency was reduced in thin markets; market liquidity made worse because counterparties were reluctant to buy positions or securities fearing that LTCM would dump more on the market rapidly.
- Systemic risk if cross-defaults provisions were triggered; prompted Federal Reserve to broker an industry agreement to save LTCM through a $3.625B recapitalization
- LTCM models did not work if prices were discontinuous
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Northern Rock
- £13 billion infusion of taxpayer money
- 2008
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- Britain's first bank run in 140 years
- Liquidity crisis caused by the mismatch between the bank’s reliance on short-term wholesale sources of funds and its uses of funds (which were only short-term as long as securitization markets were sufficiently liquid to allow asset sales).
- Having failed to find a commercial buyer, it was taken into public ownership in 2008, and was then bought by Virgin Money in 2012
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