Posted by Chris McClean on January 12, 2010
By the end of this year, we will likely all be sick of the phrase “systemic risk.” Referring to the complex and interconnected nature of risks that brought down the financial services sector, the phrase has been a focal point in the discussions on how to prevent such failures in the future. (And in my experience, this increased attention means that service and software vendors will be using the term in their marketing literature with increasing frequency in 2010.)
Policy makers are recommending systemic risk solutions such as new oversight bodies to assess for systemic risks or penalties for companies that are perceived to threaten the system. European Central Bank president Jean-Claude Trichet even suggested that financial institutions help avoid systemic risks by "putting aside their own profit" and being "moderate in remuneration behavior," in order to reinforce their balance sheets.
One of the benefits I hope to see come out of this attention is a realization that we should be thinking about a variety of systemic risks. An interesting study from the International Monetary Fund argues that a positive correlation between the amount risk mortgage lenders assume and the amount of government lobbying they sponsor is a systemic risk. It would be encouraging to see similar assessments of systemic risks outside of financial services. Whatever “systems” your company is connected to (food, energy, transportation, telecommunications), the lessons offered by the financial services sector should be top of mind.
Consideration for third party and industry risks is one of 5 key trends I highlight in my "Trends 2010: Governance, Risk, And Compliance Aim To Support A Controlled Recovery" report published last week and one that I think will drive substantial improvements in GRC programs. As always, I welcome any feedback you have on the trends I describe in this report and any that I might have missed.