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Tail Risk Management
Build a More Resilient Risk Management Architecture
22-23 Oct 2015
NBC TOWER | Chicago, IL, United States of America
- Why You Should Attend
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Tail Risk Management
Remember the famous quote from Donald Rumsfeld in 2002: "There are known knowns; that is to say things we know we know. There are known unknowns; that is to say, there are things that we know we don’t know. But there are also unknown unknowns—there are things we do not know we don’t know."
Everyone will acknowledge that capital is the primary (and ultimate) driver of defense against unexpected losses from unquantifiable uncertainty. As a result, the objective in managing unquantifiable uncertainty is to preserve and protect capital from extreme risks. But, risk management and tail risk management have such different objectives and motivations that one cannot be merely extended to manage the other. Risk management drives a firm's revenue engine, while tail risk management preserves the firm's survivability (but bear in mind that tail risk management is more than merely capital management). Therefore, relying on risk management to manage just-in-case risks (or, extreme financial risk) is a disaster waiting to happen, as shown by the events of 2008.
It is important to note that this class will focus much more on the governance, architecture, qualitative methods, and risk mitigation techniques surrounding tail risk management than the quantitative approaches, such as hedging.
In the aftermath of the global financial crisis not to mention the current euro debt showdown, this 2-day training course on tail risk management answers the question: what changes should financial institutions undergo to ensure reliable protection against low probability high severity risks? The massive failures among large and respected financial institutions over the last seven years clearly illustrate that current risk management practices and banking regulations continue to fail to provide adequate responses to the challenges set by tail risks.
Through this class, Pascal vander Straeten will combine analysis of the nature of tail risk (so-called extreme risk), risk management practices and practical solutions to build a robust, enterprise-wide, extreme risk management framework which includes three lines of defense, ranging from strategic to tactical, designed to help address the tail risk during different stages of its development.
Additionally, Pascal will also provide a response to (i) why modern ‘sophisticated’ risk management frameworks, strong capitalization and liquidity do not prevent banks from failure in the face of systemic crisis; (ii) what it means to build an effective anti-tail risk defense against systemic and catastrophic losses; (iii) what risk architecture should look like to ensure that extreme risk events are identified early and efficiently mitigated; ad (iv) how modern management practices, regulation and risk and business culture need to change to guarantee sustainability. While the context of this training is financial services, the class contains important take-away messages for businesses active in any industries exposed to the extreme risks (oil/gas, energy, mining, chemical productions, transportation, etc.).
Participants should have some prior knowledge and experience in financial risk management, lending and investment practices, and Basel II and III.