Consultant: Subprime Crisis Is 'Master Class' in Risk-Management Failure

Lora Bentley

According to Ramesh Venkataraman, a managing director for corporate governance and compliance consultancy CurAlea, the subprime lending crisis could be "a master class in risk-management failure." He recently told The Hindu:

How would you explain large global banks and investment firms not having anticipated the risks, when they should have been aware that mortgage lenders were chasing borrowers with lending practices that were too aggressive to be sustainable?

He says the results suggest short-term pressures caused the affected companies to engage in risky behavior. His theory is proved in part by the admission of UBS officials in anticipation of Wednesday's annual shareholder meeting.


Though the majority of Venkataraman's interview with Hindu writer D. Murali focuses on risk management in India's businesses, many of his insights are instructive to businesses anywhere, both large and small. For instance, he notes that enterprise risk management must have measurable deliverables to move beyond a mere exercise in compliance. Moreover, he says effective risk-management processes must be "seamlessly integrated" with a company's existing planning processes.

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Jun 12, 2008 3:22 AM Norm Barnes Norm Barnes  says:
Mortgage Risk Management 101 was a result of an operational premise that Net profits can be increased by increasing Gross Profits, minimizing the staff and related expenses it takes to properly Manage the resources and place aside unrealistic reserves for the outcome of this shallow analysis.The Underwriting challenge today is that which is caused by second guessing. The learned Underwriters among them will fall back on the premises set by their evolution and they will need to incorporate "Collection Potential" along with "Reasonableness of Risk".Loan losses in Mortgage Pools can be diminished by making loans to individuals who are willing to surrender assets as collateral and who can be reasonably expected to pay the obligation over the mortgage period voluntarily and without costly legal action. These type loans will be inhibited by Credit Score driven lending.I'm no genius but I can tell you this my children could underwite loans to individuals who have valuable bricks and mortar and a good education and savings portfolio.The test comes to the marginally affluent who may not sustain their present levels of income because of a changing economy.The answer lies in prudent lending; and, A minimization of the credit score valuation in making a loan, and an eye to the security available and the ability for the borrower to perform on the obligation created. Reply

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