A few months ago, I was called “boring banker from a boring bank” by a fellow banker at Washington Mutual. Recently, I have been thinking about that in light of the current credit crisis, i.e. since September 25th, when regulators seized Seattle-based Washington Mutual, the country’s largest S&L institution. I do not feel that we, at the bank I work at, are so boring. WaMu had more than $300 billion in assets, more than seven times what Continental Illinois across the street from us had in 1984. Where was their Risk Management? It is relevant to me as a professional in Risk Management in banking. We review numbers monitoring and reporting the level of risk across the bank’s portfolio and setting limits for overall credit and market-risk positions edging in favor of things we understand and can value. I am not saying that there is no gain in the creation of new financial instruments, like CMS, CDSs and other alike, but there may be something to be said about the regulatory oversight or ‘lack of’ on these instruments. There were so many incentives of profitability throughout the ‘food chain’ in the financial markets for the players in the OTC markets where these instruments trade and even for the originators of their underlying assets, i.e. subprime mortgages, that I go back to the “oversight” of the prevalent incentives question. What do you think?
