ERM could have averted sub prime credit crisis

International

The sub-prime crisis in the US could have been contained had firms been able to assess their exposure, according to a new report from Datamonitor. “The inability to aggregate an organizations’ overall risk position allowed a failing of credit risk principles in a relatively small section of the US housing market, to spill into a wider liquidity risk for global wholesale finance markets”, Datamonitor said in “The Evolution of Enterprise Risk Management”. According to Datamonitor, over reliance on models and the continuing silo structure within the majority of organizations resulted in a lack of transparency which led to a breakdown of confidence as market participants’ exposure was unknown. Datamonitor said the crisis will encourage financial services firms to develop enterprise-wide risk management to be better prepared in future. Datamonitor expects financial services firms to increase their global spend on operational risk technology from $754mn in 2007 to $1,056mn in 2010, representing an average annual increase of almost 12%.