From the course: Introduction to Risk Management
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The evolution of risk management
From the course: Introduction to Risk Management
The evolution of risk management
- [Instructor] Risk management within the financial services industry has evolved as organizations have become more sophisticated and in response to banking failures and crises. Banks began managing risk in a way that we would recognize today. In the 1940s, after World War II and in the early 1950s, banks often took out insurance against risks to cover financial losses should risk materialize in their organizations. However, paying these insurance premiums became very costly, so banks began to explore putting rudimentary risk management policies in place during the 1950s. By the 1970s, complexity within the banking system had increased due to the more international nature of the business models being used by banks, and through the introduction of derivative contracts, banks invested more time and resources into identifying and managing risks as this complexity rose. The use of derivative contracts jumped in the 1980s as banks helped facilitate the increased use of derivative products…
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