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Joint Forum releases Risk Concentrations paper
The Joint Forum released a paper on 25th April 2008, entitled Cross-Sectoral Review of Group-
Wide Identification and Management of Risk Concentrations. The paper has also
been included in the Joint Forum submissions to the Financial Stability Forum to
contribute to its work related to the market turmoil.
The Risk Concentrations paper builds upon prior work conducted by the Joint
Forum on risk integration and aggregation. It assesses the progress made by
financial conglomerates in identifying, measuring and managing risk
concentrations on a firm-wide basis and across the major risks to which these
firms are exposed. The paper also includes observations and lessons drawn from
the market turmoil that began in mid-2007.
John C Dugan, the Chairman of the Joint Forum and Comptroller of the Currency
in the United States, in the press release said, "This paper highlights critical issues in firms’
ability to identify risk concentrations and one of these relates to stress testing. Not
only do firms need to factor liquidity risk into firm-wide, integrated stress tests but
they also need to take into consideration second-order effects in the development
of stress test scenarios. Looking forward, firms that employ such techniques in the
identification of potential risk concentrations may find they are better prepared to
deal with financial market disruptions such as those that have been experienced
over the past year."
NOTE: The Joint Forum was established in 1996 under the aegis of the Basel Committee
on Banking Supervision, IOSCO, and the IAIS to deal with issues common to the
banking, securities and insurance sectors, including the supervision of financial
conglomerates.
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