
Risk management: different industries, different drivers
Energy firms get wise on credit risk; asset managers tackle op risk

Some quotes are interesting because of what they say; others because of who said them. The latter applies here: "The debate now is where to set your tolerance for market risk, credit risk and funding risk. Risk can't be eliminated completely, so it's a question of finding the right balance between those three risks."
And also here: "We use the risk-based approach to capture operational risk because this methodology is more accurate. It allows us to formulate action plans to mitigate the significant risks identified."
So, who was speaking? The obvious guess in both cases would be a bank risk manager. And the obvious guess would be wrong.
Musing on the balance between market, credit and funding risk is Peter Bjerge, lead credit analyst at Danish energy firm, Dong Energy.
Formulating op risk action plans is Martine Miet, head of operational risk at Axa Investment Managers.
In a sense, this shouldn't be a surprise. Many energy firms and large asset managers are excellent managers of risk, but they have traditionally focused on market risk in its various incarnations.
Here, we have an energy firm speaking about credit risk and an asset manager speaking about operational risk.
The same kind of evolution happened in banking. Once a formal, process-driven approach to risk management had taken root, it branched out, covering new ground – its dictums were applied to operational risk, counterparty exposures, market liquidity, business and strategy risks. But for most of these exposures, the driver was regulatory capital.
In different industries, though, there will be different drivers. Energy firms care about credit risk right now, because the oil price collapse has made the sector less creditworthy – the default rate for high-yield debt issued by US energy firms hit 5.3% in October. So, it's no surprise the sector would start applying techniques that are used in banking – gauging credit risk by using credit default swap spreads, paying greater attention to concentration risk, employing collateralisation more often.
Asset managers are not facing the same imperative when it comes to op risk. Bank-owned firms have no choice – regulatory capital again – but independent asset managers can afford to be more relaxed. It will be interesting to see how widely the discipline spreads within the industry – or whether it spreads at all.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
US Basel endgame hits clearing with op risk capital charges
Dealers also fret about unlevel playing field compared with requirements in the EU
Calibrating interest rate curves for a new era
Dmitry Pugachevsky, director of research at Quantifi, explores why building an accurate and robust interest rate curve has considerable implications for a broad range of financial operations – from setting benchmark rates to managing risk – and hinges on…
Bankers – shape up or ship out, says UBS compliance head
Tough approach comes as ECB prepares new guidance on conduct risk for 2024 release
Op risk data: WhatsApp fines keep on coming
Also: ‘Five families’ stock-lending cartel pays up; double hit for Wells Fargo. Data by ORX News
The impact of emerging risk on credit portfolio management
Bank credit portfolio managers are increasingly finding that non-financial risks, such as cyber risk and climate risk, are falling under the remit of credit portfolio management (CPM). This will also be impacted by the upcoming Basel III Final Reforms,…
Bankers call for overhaul of EBA stress tests
Support for multiple scenarios, but only if fixed assumptions and variables are scaled back
Do all roads lead to multi-scenario Fed stress tests?
This year’s CCAR faced criticism for underweighting the risk of higher-for-longer inflation
Vendors under new scrutiny in CFTC due diligence push
Planned cyber resilience regime will force dealers to subject “critical” tech vendors to stricter audit