Risk Framework Design in Practice: Getting Risk Governance and Limits Right for Financial Institutions - Hardcover

by Michelle McCarthy Beck (Author)

A comprehensive and practical collection of tools and frameworks for risk governance at banks, insurance firms, asset managers, and other financial organizations

In Risk Framework Design in Practice: Getting Risk Governance and Limits Right for Financial Institutions, veteran portfolio and risk manager, Michelle Beck, delivers a robust and functional approach to risk governance that's perfect for financial institution managers and executives. Beck skips the high-level bromides, avoids narrowly considering only one type of asset class or financial institution, and instead offers practical guidance for leaders across the full scope of the industry seeking to answer critical risk management questions:

What types of risk limits are necessary? How many of them does my organization need? How should they be set? Are minimum regulatory standards sufficient to safeguard my company's interests?

Risk Framework Design in Practice provides an effective structure for enterprise risk limits in different types of firms, including banks, asset managers, insurers, and corporate pensions. It explains how these types of firms should establish risk appetites, the essential pieces of their governance structures, and how to ensure the right information is in the right hands at the right times. It also includes:

• Deep dives into the relevant limits for market, credit, and operational risks, including the implications of using alternative methods
• Detailed discussions of contemporary approaches to limiting economic capital, value at risk, stress tests, exposures, liquidity, concentrations, stop-losses, and drawdown limits
• Approaches to operational risk that avoid the expensive trap of attempting to police business efficiency, and instead focus on control strength for truly dangerous risks

Risk Framework Design in Practice is an effective resource for chief risk officers and professionals working in enterprise risk departments at banks, broker dealers, insurance companies, asset managers, and hedge funds. Also perfect for board members at banks and insurance companies, in-house counsel at financial firms, and bank and securities regulators.

Front Jacket

Much is written about enterprise financial risk metrics--but little is written about the level, design, and implementation of risk limits. In Risk Framework Design in Practice: Getting Risk Governance and Limits Right for Financial Institutions, veteran portfolio and risk manager Michelle Beck delivers a robust and functional approach to risk governance for different types of firms, including banks, asset managers, insurers and corporate pensions.

Using the experience of expert risk practitioners and supported by the latest academic research, the book provides a practical set of recipes for the different levels of an organization, discussing the many detailed properties of risk measures and how to convert them across different types of units as well as implementation challenges and how to overcome them.

Readers will find key insights on:

• How firms establish risk appetites
• Essential elements of governance structures that ensure the right decisions either rise to boards and senior management or are left to staff discretion
• Limits that are used for market and credit risks, including the implications of alternative methods, with detailed guidance for staff charged with implementation
• Approaches to limiting economic capital, value at risk, stress tests, exposures, concentrations, and drawdowns; effective approaches for operational and model risk
• How to test risk controls to ensure they are effective; when tests reveal issues, how to distinguish those that point to genuine flaws in risk controls

Filling a critical gap in existing literature, Risk Framework Design in Practice: Getting Risk Governance and Limits Right for Financial Institutions earns a well-deserved spot on the bookshelves of chief risk officers and professionals working in enterprise risk departments at banks, broker-dealers, insurance companies, asset managers, and hedge funds.

Back Jacket

PRAISE FOR RISK FRAMEWORK DESIGN in Practice

"Beck's terrific book fills a critical gap in the risk management literature, delivering a clear and practical guide for building -- or transforming -- risk functions in today's complex financial landscape. Uniquely, Beck extends the discussion beyond the banking sector, incorporating perspectives from non-bank institutions and private assets -- a rapidly growing asset class. A must-read for anyone charged with overseeing or executing sound risk management governance."
--Bradford Hu, CRO, State Street

"Effective risk management is a team sport. No matter what position you play on that team -- board member, senior executive, investment professional, ops, IT, compliance or sales -- Beck's book is a must-read. In addition to explaining how to monitor and manage risk, Beck provides terrific questions to help you identify an appropriate 'Goldilocks framework' for your organization, product or portfolio -- one that is neither too big nor too small, but just right."
--Holly H. Miller, former Senior Policy Advisor at the U.S. Securities and Exchange Commission and co-author of The Top Ten Operational Risks: A Survival Guide for Investment Management Firms and Hedge Funds

"Accessible, insightful, and deeply practical -- Michelle Beck's book is ideal for practitioners who want to strengthen their risk programs and students eager to learn how financial risk management works in practice."
--Elizabeth Mays, PhD, former Chief Model Risk Officer, PNC Financial Services

"Michelle Beck's foundational book on risk framework design is a much-needed primer for the industry. Her hands-on experience at leading financial institutions combined with her ability to clearly highlight the core principles of successful risk management make Beck's book required reading for both risk managers and business leaders."
--Christopher A. Van Buren, CFA, former Chief Risk Officer at Fortune 500 Companies

"A detailed roadmap for anyone needing to build a world class risk organization for a financial institution, from one of the founders of the profession."
--Jacques Longerstaey, EVP and Chief Risk Officer, Voya Financial

"Michelle Beck has an extraordinary ability to identify and explain financial risk, as she has done for the world's leading financial institutions and America's senior-most financial regulators. In her lucid and comprehensive new book, she distills that wisdom with clarity and sophistication into a mandatory guide for every serious participant in the global financial markets."
--William Birdthistle, Professor from Practice, University of Chicago Law School, and former Head of the SEC's Division of Investment Management

"Risk Framework Design in Practice provides detailed and practical guidance for CROs to help ensure risk levels are aligned with risk appetite while supporting active risk taking."
--Kristen Walters, former Chief Risk Officer, Senior Advisor at Global Association of Risk Professionals, and Lecturer at Columbia University

Author Biography

MICHELLE McCARTHY BECK has nearly 40 years of experience as a derivative portfolio manager, risk manager, and chief risk officer in large banking, asset management, and insurance companies in the U.S. and Europe. Most recently, she served as a risk management expert at the U.S. Securities and Exchange Commission.