The lessons of the modern financial crisis: an approach in terms of risk-management

Abstract

In the last twenty years, the financial risk management has gained an important role for the companies and financial institutions. Financial innovations have improved the efficiency of risk management process, but at the same time, they have imposed new challenges for market participants and their supervisors in the areas of systemic risk. An important feature of periods of financial innovation is that the rapid increase in new products and changes in the structure of those markets can outpace the development of the risk management and processing and settlement infrastructure. The current financial crisis has revealed significant weaknesses in risk management practices across the financial services industry. This paper analyses the main lessons that can be drawn from the current financial crisis in order to improve the financial risk management.
Key words: risk management, financial crisis, lessons, credit derivatives, financial innovation, systemic risk.