Risk: Where are financial institutions currently focusing their risk management efforts?
Paul Elflain: We are currently seeing all financial institutions undertaking a rigorous assessment of all their risks in business, including market, counterparty, credit, liquidity, legal and operational risk. Valuation risks associated with structured product and non-vanilla over-the-counter (OTC) derivatives are clearly going to be a big focus from here on, but we are also seeing firms placing immense focus on the reduction of counterparty risk. High-profile credit failures, such as that of Lehman Brothers and the economy of Iceland, coupled with the complexity of OTC instruments has meant that counterparty risk has become a daily concern for market participants.
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