Kristin Johnson and I just posted a new article addressing the new standards for enterprise risk management (ERM) imposed by Congress and regulators in the wake of the Great Financial Crisis of 2008. The article is entitled: "New Guiding Principles: Macroprudential Solutions to Risk Management Oversight and Systemic Risk Concerns."
The article is the first to comprehensively assess the entire legal and regulatory response to the financial crisis in terms of enterprise risk management in the financial sector. It is also the first analysis to express skepticism of the new risk management regime due to flaws in general corporate governance law and regulation. Professor Johnson and I pioneered legal scholarship in the ERM arena, with prior works like this, this, and this, and this piece extends our research into this key area of growing importance in financial regulation and corporate governance. Many of our prior works argued for improvements in ERM that ultimately became law.
Here is the abstract for our most recent publication on ERM:
The financial crisis of 2008 revealed massive failures in risk management throughout the financial sector. Congress and federal regulators responded to these manifest failures with initiatives to reconstruct risk management structures within large financial institutions and public firms. Nevertheless, these initiatives rely upon proper corporate governance frameworks creating proper incentives for senior managers and directors to attend to risk management. As such, these initiatives are unlikely to succeed and expose our economy to continued macroprudential risks and resulting financial instability. In sum, these corporate governance-oriented reforms are too weak to stem the tidal wave of enterprise risk and systemic risk that risk management failures at financial firms engender. Continued reliance on these types of reforms is not inherently problematic. The failure to recognize the limits of this approach, however, may well lead to even more devastating risk management failures, market disruptions, and the realization of irreversible systemic risks.
The article was part of a symposium on financial regulation sponsored by the St. Thomas Law Journal, and is available for free download here.