Management of existing, evolving, and emerging risk is paramount to the financial stability of the United States and global markets. This is evidenced by the recent bank failures, followed by subsequent government action taken out of regulatory concern over possible contagion effect to other banks and broader economic spillover.[1] Federal Reserve Board Vice Chair Michael Barr recently testified before the Senate at a hearing on the bank failures, “the events of the last few weeks raise questions about evolving risks and what more can and should be done so that isolated banking problems do not undermine confidence in healthy banks and threaten the stability of the banking system as a whole.”[2]
Sound risk management is particularly crucial for CFTC-registered swap dealers, the majority of which are global systemically important banks on Wall Street (or their affiliates) or other prudentially-regulated banks. If there was any one issue at the center of the 2008 financial crisis, it was the failure of risk management by Wall Street. The Dodd-Frank Wall Street Reform and Consumer Protection Act required these dealers to establish and maintain risk management programs. The…
