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Wanted: Cassandras

February 19, 2010 By Cogent QC

Cassandra bust by Max Klinger

It’s good news that in some quarters, quality control is beginning to matter. But here’s the Economist to remind us that the job of risk manager “is said to have the risk profile of a short option position with unlimited downside and limited upside — something every good risk manager should avoid.”

Small wonder that talent is staying away in droves.  In sales-driven cultures – like mortgage banking – it’s frowned on to discourage transactions, without which money can’t be made.  The bias is to get the deal done.  So risk managers are always swimming against the current.

However, risk is currently the busiest area for financial recruiters, which means there is a lot of activity.  Chief risk officers are being appointed, risk committees and departments are being formed, and new regulations are announced with frequency.

But business practices adapt to new structures and find their way around them. (Like fraud, in some ways.)  Once the spotlight is off regulation and compliance, experience suggests that a new innovation will make it seem like “it’s different this time”.  And the Cassandras in risk management will be ignored anew.

So how does a risk manager survive the next bull market?  Hope that new incentives will be put in place to encourage the right behavior.  And show the ROI of risk management – or in the case of mortgage quality control professionals, show the return on quality (ROQ).  In future posts, we’ll try to help formulate that ROQ.

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