Sunday, June 04, 2006

Inside Wall Street's Culture Of Risk

Inside Wall Street's Culture Of Risk

Nice article in Businessweek on Risk as it pertains to banking nowadays. With firms leveraging their own capital upto the hilt, risk management takes centerstage.

This trading boom, fueled by cheap money, is fundamentally different from the ones of the past. When traders last ruled Wall Street, during the mid-'90s, few banks put much of their own balance sheets at risk; most acted mainly as brokers, arranging trades between clients. Now, virtually all banks are making huge bets with their own assets on many more fronts, and using vast sums of borrowed money to jack up the risk even more. They're shouldering risks for their clients to an unprecedented degree. They're dabbling in remote markets from Brasilia to Jakarta, and in arcane products like credit-default swaps and catastrophe bonds.


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