Page 29 - Risk Management in current scenario

management is required by regulator. Some of the other advantages of
risk management are:
Better risk transfer
X Understanding of linkage between business growth risk and return.

X Better allocation of capital
X Improve valuation of the company
X Reduce earnings volatility
X Increase shareholder value addition etc.

Why Risk Management Now
2008 economic crisis accelerated the pace of development of risk
management (ERM) in a similar way the "Great Depression" in 1930s led
to the development of macro economics by publication of the book
"General Theory of Employment, Interest and Money" by John Maynard
Keynes. The idea by Keynes was to prevent another great depression from
happening again. Some of the reasons of 2008 economic crisis were:
X Overall control failure
X Failure of the Board Room

X Too innovative products
X Easy available credit
X Poor financial underwriting

Though the 2008 Economic crisis has led to hastening of use of risk
management tools, the work on risk based capital where good risk
management helps in improving the capital position of the Company
started some eight to ten years before the economic crisis. This indicates
that world had started moving towards reward of risk management much
before the economic crisis.

The post crisis 2008, many papers were written on the possibility of future
recurrence of such crisis, however, it has been concluded that no risk
management can totally prevent another crisis but it can prepare the

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