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.
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