COMMERCIAL BANK RISK MANAGEMENT - AN ANALYSIS OF THE PROCESS

Throughout the past year, on-site visits to financial service firms we re conducted to review and evaluate their financial risk management sy stems. The commercial banking analysis covered a number of North Ameri can super-regionals and quasi-money-center institutions as well as sev eral firms outside the U.S. The information obtained covered both the philosophy and practice of financial risk management. This article out lines the results of this investigation. It reports the state of risk management techniques in the industry. It reports the standard of prac tice and evaluates how and why it is conducted in the particular way c hosen. In addition, critiques are offered where appropriate. We discus s the problems which the industry finds most difficult to address, sho rtcomings of the current methodology used to analyze risk, and the ele ments that are missing in the current procedures of risk management.