Page 25 - RMAI Bulletin July 2024

RMAI BULLETIN JULY 2024

Biggest Risk

management

Failures? Causes,

Remides, Lessons

Shreya Shukla

Introduction There have been several high-profile risk management

Risk management is an essential aspect of any busi- failures in recent years that have resulted in significant
ness, project, or organization. It involves identifying financial losses and reputational damage for organiza-
potential risks, assessing their impact, and taking mea- tions. Some of the most notable failures include:
sures to minimize or mitigate their effects. The failure 1. The 2008 global financial crisis, which was caused
of risk management can have severe consequences, by the failure of banks and financial institutions to
including financial losses, damage to reputation, and properly manage risk in the housing market and
even loss of life. In this project, we will discuss the subprime lending.
biggest risk management failure, its causes, remedies, The 2008 global financial crisis: This was one of
and lessons learned. the biggest risk management failures in modern
history. It was caused by a number of factors, in-
Background cluding the failure of banks and financial institu-
tions to properly manage risk in the housing mar-
Several risk management failures have occurred over ket and subprime lending. There was a lack of
the years, affecting various industries and organiza- transparency in financial transactions, inadequate
tions. One of the most significant risk management risk management frameworks and processes, and
failures happened in the financial sector in 2008. The a focus on short-term gains over long-term
subprime mortgage crisis resulted in the collapse of sustainability. The crisis led to significant financial
several banks and financial institutions, triggering a losses, bankruptcies, and a worldwide recession.
global economic recession. The crisis exposed the The remedy for this failure has been increased
weaknesses in the risk management processes of these regulations and oversight in the financial sector,
institutions, leading to significant losses for investors including stricter capital requirements for banks
and stakeholders. and the creation of new regulatory bodies.

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