The shock of the interaction

Banks have long talked about enterprise risk management, but many have historically measured risk types separately and aggregated the results. The financial crisis has highlighted that credit and market risk are closely linked. What are the challenges to measuring these risks on an integrated basis? By Nick Sawyer, with reporting by Ryan Davidson

The financial crisis has forced a rethink on how banks and regulators approach enterprise risk management. For many institutions, different risk types have historically been measured and managed separately across positions, then aggregated to come up with a single, enterprise-wide view of risk.

However, the recent market malaise has shown the distinctions between market risk and credit risk are a lot more blurred than many people had thought. In fact, the two risk types have been shown to