The real time risk challenge

In a recent report from Lepus, senior representatives from global investment banks indicated that current approaches to risk management are inadequate.  

As it stands, global investment banks are at different stages in the move to real time risk management. However, all agreed that the ability to aggregate global data and take snapshots of their risk position is essential not only to react to extreme scenarios but also for risk events that occur every day. 

While these insights are by no means ground-breaking and have been discussed at an industry wide level for some time, the report goes on to outline what is needed to rectify the situation. One of the main problems the report highlighted was data quality and accessibility for both traders at the coalface and risk decision makers. Without an up-to-date, firm-wide view of their positions, firms are unable to determine their aggregate risk exposures intra-day. This can lead to higher than desired intra-day exposures and possibly gaming - which often remains undetected . It also means that profit opportunities are missed.

I’m sure I’m not alone in saying that real time risk management solutions are long overdue. However, for this to be possible, risk managers would need to achieve a complete picture of all the different positions and trades at any given time in order to ascertain an accurate view of their risk exposure. 

Given the siloed nature of investment banks coupled with the multitude of different systems running in the different lines of business, risk managers within investment banks have a challenge ahead of them and will require the use of smarter and more agile technology. While this will mean substantial investments of both time and money it will surely be a price worth paying if a bank is to stay on top.