Globe & Mail asks M. Williams about SocGen’s risk management–and $7.2 billion loss
For their article on rouge trader Jerome Kerviel and the scandal he unleashed at French bank Société Générale, Canada’s Globe & Mail seeks insight on risk management from Mark Williams, executive-in-residence at Boston University School of Management’s Finance & Economics Department and MBA Program alumnus (GSM ’93). Journalists Sinclair Stewart and Paul Waldie, in “One phone call, and it all unravelled,” report:
[R]isk experts were befuddled as to how a trader [such as Kerviel] with a €13.5-million portfolio could make such massive wagers for what appears to be a lengthy period of time….Like most in the industry, SocGen’s risk management systems have been criticized for failing to see warning lights in the subprime housing market. Now, the bank’s internal controls are being questioned too.
Mark Williams, a finance professor at Boston University who specializes in risk management, believes the costly blowup at SocGen will push banks to focus on managing risk, rather than taking it.
“You’re going to see a swift pendulum shift,” he predicted. “You can never eliminate rogue trader risk. You can only minimize it … by having strong risk controls in place. Clearly Société Générale did not have those in place.”…