Are we immune enough to take on recession? Last recession has taught us so many things including what could be the possible medicine. However, the last medicine which were distributed was government intervention and inflow of money which government can print. It definitely has some side-effects which includes inflation, risk averse and most importantly government involvement in corporate strategy. Use of public money to help corporate can be a make-shift arrangement, but thereafter living with the problem is never a wise decision. While addressing the credit crunch problem most of us have forgotten the underlying problem which is the risk identification and management. It is considered that banks are big and complex to measure the risk properly and even a small mistake can take us to next recession.

Many of the companies in the US and worldwide have announced positive 3rd quarter result and seems ‘green shoots’ are upcoming to forecast a Greenfield. But the fact behind these green shoots are the seeds which were sowed by borrowed money and not the own capital. These green shoots may be enough to demise hangover after a recession but the next imminent question is - ‘how we are addressing the underlying problem?’

Can we have a definite answer from the banks
- How many business processes are under risk surveillance (considering all three pillars of BASEL-II)
- Is each loss given business process monitored for greater leveraging impact
- There is no clear definition of market risk calculation in BASEL-II accord, in such a case how banks are measuring and complying to ICAAP (Internal Capital Adequacy Assessment Process)
- Most of the banks in the world are based on legacy infrastructure – how do they ensure that each siloed department/division risk is monitored and controlled centrally

Risk managers know the fact that measuring risk is not a science but an art, it is not pure math which can be based on rating models and comply the standard definition. BIS has agreed to this fact and hence more importance is given to internal rating calculation engine. Banks or BIS cannot develop a system ‘one size fit all’ due to nature of business, local land-laws, structure of business processes, etc. however, every bank can have own strategy to tap each and every business process to calculate close to realistic risk exposure. At the same time BIS should arguably come up with certain basic structure and guidelines in the terms of market declaration.

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