It is not the risks we know that should worry us

There have been countless risk conferences and countless hours spent by risk managers over the years on the importance of understanding and mitigating risks in the markets. The sad fact is that recent events prove we know very little about risks in today's financial services and the system solutions that we all thought were providing some means of protection are all fallible.

So banks, regulators and all those people in the risk management business now need to go back to square one and revaluate the risks in the market that we all know exist but also those that we now know can wipe out any risk management capability. Acts of God and unintended consequences have to be part of the new risk formula, as will the interaction between wholesale and retail markets. Liquidity is not a new risk but how it impacts the financial system needs to be evaluated and included in the new risk models that surely have to be designed and implemented with some urgency.