金融财经英语演讲稿.doc

金融财经英语演讲稿 strategicriskmanagementinaninterconnectedworld itisnotanoverstatementtosaythatweareinthemidstofafundamentaltransformationinfinancialservices,withmarket-wideramifications.attheheartofthattransformationliesamuchmoreintenseemphasisonfundingandliquidity.additionally,weareallwitnessingtheextenttowhichbankingandfinancialmarketsareinterconnected. thecurrentenvironmentcertainlypresentssomefundamentalchallengesforbankinginstitutionsofalltypesandsizes.1theirboardsofdirectorsandseniormanagement,whobeartheresponsibilitytosetstrategyanddevelopandmaintainriskmanagementpractices,mustnotonlyaddresscurrentdifficulties,butmustalsoestablishaframeworkfortheinevitableuncertaintythatliesahead.notably,theongoingfundamentaltransformationinfinancialservicesoffersgreatpotentialopportunitiesforthoseinstitutionsabletointegratestrategyandriskmanagementsuessfully,andiwillarguethatsurvivalwillhingeuponsuchanintegrationinwhatiwillcallastrategicriskmanagementframework. intheremainderofmyremarks,iplantodiscussthenecessityforinstitutionstoimprovethelinkagebetweenoverallcorporatestrategyandriskmanagement,andhowtheycandevelopconcretestrategicriskmanagementframeworks.iwillarguethatinthehighlyinterconnectedfinancialworld,fundingandliquidityneedtobeatthecenterofsuchframeworks.butbeforedoingso,iwillbrieflyreviewrecentevents. recenteventsinfinancialmarkets weareindeedwitnessingdramaticshiftsinthestructureoffinancialmarkets.thesearequiteextraordinarytimesthathaverequiredextraordinaryresponsesfromthefederalreserve,thetreasury,andothergovernmentalbodiesintheunitedstatesandaroundtheworld.sincelastsummer,therehadbeenacontinuousdeteriorationofconditionsinfinancialmarkets,beingmuchmoreacutesincemarchofthisyear.forinstance,wehaveseensignificantdisruptioninseveralkeysectorsofourfinancialsystem,suchasnormallycreditworthypanieshavingdifficultyissuingmercialpa-pe-r,dramaticincreasesininterbanklendingrates,andsignificantconcernsaboutmoneymarketfundsbreakingthebuck.thesearesectorsusuallyconsideredtoberelativelylowriskandquiteliquid,sodisruptionsherehavesignaledtheextentanddepthofthisturmoilandthelackofconfidenceamongfinancialmarketparticipants. thefederalreservehasrespondedtothesedevelopmentsintwobroadways.first,followingclassictesofcentralbanking,thefederalreservehasprovidedlargeamountsofliquiditytothefinancialsystemtocushiontheeffectsoftightconditionsinshort-termfundingmarkets.second,toreducethedownsideriskstogrowthemanatingfromthetighteningofcredit,thefed,inaseriesofmovesthatbeganlastseptember,hassignificantlylowereditstargetforthefederalfundsrate.indeed,earlierthismonth,inanunprecedentedjointactionwithfiveothermajorcentralbanksandinresponsetotheadverseimplicationsofthedeepeningcrisisfortheeconomicoutlook,thefederalreserveagaineasedthestanceofmoarypolicy.wewillcontinuetouseallthetoolsatourdisposaltoimprovemarketfunctioningandliquidity,toreducepressuresinkeycreditandfundingmarkets,andtoplementthestepsthetreasuryandforeigngovernmentswillbetakingtostrengthenthefinancialsystem. asaresultoftheseongoingupheavals,wearewitnessingsubstantialinstitutionalchanges,inwhichsomelong-standingfinancialinstitutionshaveeitherfailed,soughtgovernmentassistance,orwereforcedtomergewithotherinstitutions.whatwerethemajoru.s.investmentbankshaveessentiallydisappeared,suchasbymergingwithbankholdingpaniesorbeingbankholdingpaniesthemselves.othermajorbanksandthriftshavebeenabsorbedintootherbankingorganizations.financialinstitutionsandinvestorshaveplacedmuchmoreemphasisonthebankingcharter,likelydrivenbybanksmorestablefundinganddepositinsurance,evenbeforetherecentlyannouncedgovernmentsupportofthebankingsystem. overthepastyear,therehasbeenincreasingconcernamongfinancialinstitutionsandothercounterpartiesaboutthehealthofsomefinancialinstitutions.uncertaintyaboutthevalueofassetsandotherexposures,aswellasuncertaintyabouttheabilityofinstitutionstosustaincontinuedaesstofunding,hascausedfinancialinstitutionstooperatewithgreatcautionandhoardfunds.whatwasonceahealthy,activeinterbankmarkethasbeefrozenfromtimetotime,assomeinstitutionsfeelthatconditionsaresouncertainthattheycannotevenlendtolong-standingclientsorcounterparties.inquiteadramaticshiftfromjust18monthsago,thereismuchmorescrutinybeingplacedoncapitaladequacy,withfinancialinstitutionstryingtoretainasmuchcapitalastheycan,raiseasmuchaspossible,anddemonstratethattheircapitalpositionsarenotimpaired.thecapitalpurchaseplanbytheu.s.treasurydepartmentundertheemergencyeconomicstabilizationactisfocusedonimprovingcapitaladequacyand,hence,improvingconfidenceintheinterbankmarket. perhapsoneofthemostpressingissues,asimentionedbrieflyearlier,istheintenseemphasisonfunding.thisdramaticshiftinconcernsaboutafinancialinstitutionsfundingbaseresultsinmuchmorefocusonthestabilityoffundingsources-oneofthereasonsthatthebankcharterhasbeesoattractive.indeed,weareseeingtheemphasisonfundingdrivingmanyotherfactorsthataffectfinancialinstitutions,includingtheviabilityofvariousaspectsoffirmsbusinessmodels.andproblemswithliquidityhaveaffectedcapitallevels,whichinturnhavefurtherexacerbatedliquidityconcerns.itisindeedquiteremarkablehowthisflighttoliquidityhasbroughtaboutsomanyinstitutionalandstructuralchanges,andbeeessentiallythemostimportantfactor(atleastnow)fortheviabilityofafinancialinstitution. overthepastyeartherehavebeenanumberofstudiesanalyzingthecausesofthecurrentturmoil,whichincludeshortingsintheriskmanagementpracticesoffinancialinstitutions.2itisabsolutelyclearthatmanyfinancialinstitutionsneedtoundertakeafundamentalreviewofriskmanagement.theynowrealizethatignoringriskmanagementinanyaspectofthebankingbusinessusuallycreatesproblemslateron.riskmanagementshortingsneedtobeaddressednotonlytoimprovethehealthandviabilityofindividualinstitutions,butalsotomaintainstabilityforthefinancialsystemasawhole. frameworkforstrategicriskmanagement atthistime,iwouldliketoexplainabitmoreaboutwhatimeanbyastrategicriskmanagementframework.inmyview,aneffectiveoverallcorporatestrategybinesasetofactivitiesafirmplanstoundertakewithanadequateassessmentoftherisksincludedinthoseactivities.unfortunately,manyfirmshaveforgottenthesecondpartofthatdefinition.inotherwords,therecanbenorealstrategicmanagementinfinancialserviceswithoutriskmanagement,hencemyuseofthetermstrategicriskmanagement.riskmanagementneedstobeinterwovenintoallaspectsofthefirmsbusinessandshouldbepartofthecalculusforalldecision-ma-ki-ng.strategicdecisionsaboutwhatactivitiestoundertakeshouldnotbemadeunlessseniormanagementunderstandstherisksinvolved;assessingpotentialreturnswithoutfullyassessingthecorrespondingriskstotheorganizationisinplete,andpotentiallyhazardous,strategicanalysis. ensuringthatriskmanagementpermeatesanentireorganizationmayrequiresomefundamentalchangesforcertainfirms.andthislessonappliesnotjusttotheprominentorganizationsmentionedintheheadlinesoflate,butalsotosmallerfirms.evenifsmallerfirmshavebeenlessaffectedbytherecentturmoil(andperhapshaveevenwonbacksomemarketshareascustomersseekmoretraditionalplacestoputtheirmoney),theirmanagementsmustunderstandthatthefinanciallandscapehaschangedandneedstobesurveyedanewbecauseeventsoutsideoftheircontrolinmarket-wideflighttoliquidity,forexample,canhavedirectimpactsonthem.ofvitalimportancewillbeincorporatingintostrategicriskmanagementthelessonthatfundingandliquiditywillbeamajordeterminantofinstitutionssuessgoingforward. buildingarigorousstrategicriskmanagementframeworkrequiresaninstitutiontoreexaminebothitsinternalpracticesanditsexternalenvironment,andtounderstandhowcloselythetwoareconnected.inotherwords,externalfactorshaveanimpactoninternalpractices,butthoseinternalpractices,becausefinancialmarketsaresointerconnected,caninturnhaveanimpactonhowtheinstitutionisviewedexternally-andevenhaveanimpactonthemarketplacemorebroadly.wehavewitnessedseveralsuchexamplesoflate,inwhichaninstitutionencounteredsevereliquidityneeds,whichthenaffectedfundingforotherinstitutions.institutionsneedtounderstandbetterthatanumberoffactorsaffectingtheirbusinessarebeyondtheircontrol,andthateventscanhavesecondaryortertiaryknock-oneffects.therealartistorealizethatwhileallinstitutionsmaybeaffectedbyexternalfactors,eachisaffectedinitsownway. nowthatihavelaidoutageneralframeworkforstrategicriskmanagement,iwouldliketoofferafewexamplesofitsapplication. fundingandliquidity asinoted,thecleardriverofthefundamentaltransformationinfinancialservicesistheincreasedimportanceoffundingandliquidity.theabilitytosecurefundingisafundamentaltaskinbanking,imesofstress,suchasnow,havingasolidandreliablefundingstructurebeesmuchmoreimportant,insomecasessomuchsothatitaffectsmostotherbankingactivities. thecurrentturmoilhasbroughtaboutsubstantialdeleveraginginfinancialservices.managingthisprocessisanimmediatechallengeforbankinginstitutions,astheymustconsidertheneedtoreduceleverageattheirowninstitutionaswellasunderstandtheconsequencesofdeleveragingatotherfirms.thisisclearlyanexampleofexternalfactorsaffectinginternalpractices,andviceversa.fromastrategicperspective,bankdirectorsmustexaminetheircurrentandfuturefundingsituationinlightofrecentdeleveraging,itsnear-termprospects,andthestateofoverallliquidityinfinancialmarkets. financialinstitutionsrelyonexternalfundinginsomefashion-eitherthroughretaildeposits,interbanklending,ordebtofferings.therefore,theymustunderstandthattheirfundingcanbesubjecttothevagariesofthemarket,suchassuddenshortagesofmarketliquidityorrapidswingsininvestorsentiment.forexample,banksmaybenefitinthenearterminattractingdepositsandtherebyimprovetheirfundingpositions,buttheyalsomayexperiencemoredifficultysecuringothersourcesoffundsandfindthatsituationpersistingforsometime.additionally,counterpartyreactionstochangesinthebusinessmixorriskprofileofaninstitution(oreventheperceivedchangeinitsriskprofile)couldsuddenlyhampertheabilitytofindfunding. inrecognizingtheinherentleverageinthebusinessofbanking,institutionsmustexaminelonger-termimplicationsoffundingandliquidity,andbegintobuildthoseintotheoverallstrategicplanfortheirorganizations.themarketforexternalfundingisaninternationalone,soliquiditytroublesinonemarketcanhaverepercussionsinothers.aordingly,banksshouldbepreparedforarangeofadversesituationsrelatedtofundingandmarketliquiditythatcanbeprecipitatedbyarangeofsources. bankdirectorsandseniormanagementneedtoanticipatepotentialdifficultiesinfundingthebank,anddemandthatsolidcontingencyplansareinplace-andareregularlyupdated-foravarietyoffundingandliquidityproblems.suchplansshouldincludethepotentialforexternalfactorstogenerateafundingsqueezefortheinstitution,evenifitsownpositionsandriskprofilehavenotmateriallychanged.preparingforsuddenchangesinthepricingandavailabilityatanypriceoffundingsourcesissomethingthat,leadinguptothecurrentturmoil,mostbanksdidnotfullyconsider.instead,theirmanagementsfocusedmostlyonbuildingmarketshare,growingrevenues,andrealizingtheshort-termprofitabilityoftheiractivities-atellingexampleofbanksnotproperlyincludingriskmanagementintheiroverallcorporatestrategy.astheseniorsupervisorsgroupsurveyofmajorfinancialinstitutionspointedout,therehavebeennumerousexamplesoffailuresofstrategicriskmanagementandthesemustberectifiedgoingforward. finally,strategicriskmanagementforfundingandliquidityneedstoconsiderpotentialliquidityproblemsonbothsidesofthebalancesheet.wesawsuchexamplesrecentlywhenthereweredrawsonliquiditymitmentstostructuredinvestmentvehiclesandmercialpa-pe-rconduits,andwhenbanksfaceddifficultysellingexposuresinilliquidmarkets.whenthereisamarketwidescrambleforliquidity,abankmustbepreparedtomanagefundingchallengesandunplannedassetexpansionssimultaneously.developingastrongstrategicriskmanagementframeworkthatrecognizesthevitalimportanceoffundingandliquiditytobothsidesofthebalancesheetisonewayinwhichdirectorsandseniormanagementcanhelpensurethattheirinstitutionsarereadyforsuchoutes.theyshouldalsoensurethattheyfullyunderstandthatfundingandliquidityissueswilldrivemanyoftheactivitiesinwhichtheywillbeabletoengage,somethingtowhichiwillnowturn. choiceoffinancialservicesactivities whilethefinanciallandscapeisbynomeanssettled,certainemergingtrendswillaffectwhichactivitiesmakesense,whichexposuresshouldbeassumed,andwhichrisksshouldbeundertaken.oneimmediatetrendisthatmuchofthefutureofbusinessactivitiesofbankingorganizationswillbedrivenbytheincreasedfocusonfundingandliquidity.aordingly,thistrendmustbeintegratedintoastrategicriskmanagementframework.forinstance,theremaybelessopportunitytopursueactivitiesthatwerequiteprolificunderthepreviousoriginate-to-distributemodel,suchassecuritizations,givencurrentdisruptionsorlonger-termuncertaintiesaboutthereliabilityofmarketliquidity.forsimilarreasons,otheractivities,suchasinvestingincollateralizeddebtobligationsorstructuredinvestmentvehicles-whichtypicallyreliedonrelativelyeasymaturitytransformation-maynotbeasviableinthisnewenvironment. whethertransactionstakeplaceonanorganizedexchangeorintheso-calledoverthecountermarketisanotherimportantaspectofthestrategicriskmanagementchoicesundertakenbyanorganization.whencontractsaretradedonanexchange,clearingandsettlement,forexample,mayhavelessuncertaintyassociatedwiththem.inaddition,anexchangethathasacentralizedcounterparty-perhapstheclearinghouseoftheexchange-canreduceuncertaintyaboutcounterpartyriskandhelptoavoidmarketdislocationsthatcanarisefromsuchuncertainty,notonlyforanindividualfirmbut,potentially,morebroadlyinthatmarket.thus,marketinfrastructureanditsimpactonhoworganizationsareconnectedtoeachothercanhavealargeimpactonmarketconfidenceintimesofstress. ofcourse,wehaveseenthatuncertainty,fear,andlackoftrustamongkeycounterpartiescandramaticallyaffecttradinginsomeproductsacrossmarketsinmanycountries,againanexampleoftheimpactofinterconnectedness.thesedays,institutionsareseekingmoreassurancethattheircounterpartieswillnotdefaultfromonedaytothenext.whetherthereisashifttomoretradingonclearinghouseswillbedrivenbyfirmsanalysisofcounterpartycreditriskandtheextenttowhichtheyarefortabledoingbusinesswithleveragedcounterpartiesaboutwhichtheyhavelimitedinformation.firmmanagersshouldtaketheseinfrastructureandinterconnectednessissuesintoaountinundertakingtheirownstrategicriskmanagementchoiceaboutwhatactivitiestoundertakeandtherisksposedbyeach.thisisaclearexampleofhowexternalstructuresshouldbetakenintoaountinafirmsstrategicplanning. intheirstrategicriskmanagementframeworks,institutionsshouldalsounderstandthebroaderissueofpotentialgravitationtoamodelinwhichmostoralltypesoffinancialservicesarebroughttogetherinsingleinstitutions.thatis,institutionshavetoprepareforthepossibilitythattheycouldlosecustomersand/orbelesspetitiveiftheyareunabletoprovidethefullsetoffinancialproducts.importantly,however,bankdirectorsandseniormanagement,inassemblingtheirstrategicriskmanagementframework,shouldfullyunderstandtheplicationsassociatedwithofferingmultipleproductsandengaginginawidearrayofactivities-suchasreputationalrisk.andtheyshouldnotautomaticallyassumethatengaginginmultipleactivitiesinmultiplegeographicmarketswillprovideso-callednaturaldiversification.asijustnoted,differentfinancialmarketsanddifferenttypesoffinancialservicesarequiteinterconnected,andduringtimesofstressallcanexperiencelossesconcurrently. ofcourse,theremayalsobeanopportunityforsomeinstitutionstobenefitfrommoretraditional,bread-and-butterbanking,withexposuresandriskstiedmorecloselytobankbalancesheets.thispotentialopportunityfornichebankingcouldhavecertainbenefits,asclientsandinvestors,becauseofthefearofcontagion,seekinstitutionsthatarespecificallynotinvolvedinmultiplemarketsandactivities.andlocalbankscanoftenprovidemorepersonalizedserviceandhaveabetterunderstandingoftheirclientsneeds.insuchcases,however,institutionsconductingspecializedorlocalbusinessmustunderstandtheinherentrisks,suchaspotentialriskconcentrations. pensation asmanyofyouknow,asaneconomistiamparticularlyinterestedintheimpactthatpensationhasonincentivesforbankmanagement.3iampleasedthattheindustryhasalsobeguntoaddressthisissue,asreflectedinarecentreportbytheinstituteofinternationalfinance.4clearly,theindustryneedstobetterunderstandthelinkbetweenpensationandriskmanagement,asinthepastthosetwoareashaveusuallybeenaddressedinisolation. generally,investorsanalyzefinancialinstitutionsonarisk-adjustedbasis,interpretingprofitsbasedontheamountofrisktaken.managementatfinancialfirmsshoulddothesamethingwithregardtotheirbusinessunitsandtheiremployees.arisk-sensitivepensationframeworkwillhelpprovidetherightincentivesforemployees,andestablishabetterlinkbetweentheactionsofthoseemployeesandthefirmsoverallriskprofile.institutionsshouldbeparticularlysensitivetoemployeeactivitiesthatcouldeitherdirectlyorindirectlyimpairaesstofundingordisruptliquidity. clearly,bankdirectorshaveaninfluentialroletoplayinsettingpensation,andtheyshouldexercisetheirauthoritytoestablishamorerisk-sensitivepensationframeworkwhileembeddingitinthebroaderstrategicriskmanagementframeworkoftheinstitution.directorsshouldunderstandtheconsequencesofprovidingtoomanyshort-termandone-sidedincentives.therearemanywaysthatthisrisksensitivitycouldbeaomplished,anditisuptothefirmsthemselvestoarriveatsolutions.onepossibility,forexample,istoincludemoretypesofdeferredpensation,sincetherisksofcertaininvestmentsortradesmaynotmanifestthemselvesinthenearterm.itmakessensetotrytomatchthetenorofpensationwiththetenoroftheriskprofileand,thusexplicitly,takeintoaountthelonger-runperformanceoftheportfolioordivisioninwhichtheemployeeoperates.agoodrisk-sensitivepensationregime,properlyembeddedinastrongstrategicriskmanagementframework,canbringaboutchangesinbehaviorsothatthefirmsemployeesrefrainfromtakingonriskbeyondthefirmsstatedriskappetite.perhapsmostimportantly,suchapensationregimemustgivetheappropriateincentivestotakerisksfullyintoaountduringgoodtimes,whenmanyoftenunderestimatelonger-termrisks. conclusion ihavetriedtolayouttheimportanceforbankinginstitutionstodevelopandmaintainastrategicriskman