Spheres of Influence: Risk Management After the Financial Crisis: Op-ed by Vincent H. O’Neil (F96)

Risk Management Magazine

One of the biggest revelations of the 2008 financial crisis was that the scope of risk management is almost unlimited. The violations of sound risk practices that generated the crisis spanned numerous industries and sectors: Home loan originators actively relaxed mortgage lending standards, investment banks concealed the risky nature of the resulting mortgages while packaging them into bonds for sale, and the list goes on.

Oversight was also lacking as ratings agencies stamped seals of approval on those bonds without examining them closely, and entities seemingly unconnected to the mortgage industry sold esoteric financial products that essentially insured those dangerous bonds. Government regulators failed to control the hazardous activities, and some public officials even promoted ultimately disastrous practices.

Unexpected consequences abounded as a result of the meltdown, endangering markets and businesses that initially appeared unconnected to the mortgage industry. The crisis demonstrated that the business world had become so complex and interconnected that risk management needed to widen its scope accordingly. It became evident that, because threats can come from unexpected sources, risk awareness needs to be spherical.

Read the full op-ed

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