During the last few years, global financial companies and investment banks have taken billions of dollars in write-downs owing to exposure in the subprime lending market. Lack of risk function visibility, insufficient communication of risks to top management, and siloed risk approaches have been cited as reasons for these failures. New York University finance professor Nouriel Roubini, one of the few who predicted the crisis, famously observed at the World Economic Forum's 2009 Davos Summit that risk cannot be priced correctly "when the opacity and lack of transparency of financial firms and new instruments lead to unpriceable uncertainty rather than priceable risk." These organizations apparently had risk management functions, but they did not recognize the changing market conditions and adapt their organizational strategy and processes appropriately.
Copyright © 2010, Institute of Internal Auditors
Institute of Internal Auditors
Lehmann, Constance M.; Ramamoorti, Sridhar; and Watson, Marcia Weidenmier, "Maximized Monitoring" (2010). Accounting Faculty Publications. 91.
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