Source: BearingPoint

Date: March 2008

Type: White Paper

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Overview: For firms trading mortgage product, the recent credit crisis highlighted significant gaps in the information that trading and risk management executives receive. When rates rallied, spreads widened and funding dried up, managers on most trading floors relied less on the traditional information that was readily available to them to manage through the crisis. Instead, as the crisis deepened, informal, manual, spreadsheet-driven reporting exercises were launched on a daily basis to give managers the information they needed. Consider the question—if management at any one of the top 10 firms by losses in this crisis had the sort of information contained herein, would they have avoided the crisis? BearingPoint’s work in and around the Street suggests that the answer is no. Major players knowingly descended the risk curve to pursue spread because investors were hungry for returns—and they were willing to take on greater risk to achieve those returns. Much has been debated on this topic. The decision was, in many cases, either push down the risk spectrum and risk greater losses, or stop trading in that product—neither one an enviable option. However, where management teams agree is that had they better performance and risk management information, they may have been able to minimize the impact of the market turn, avert potentially embarrassing mistakes and better manage senior management expectations. BearingPoint offers a performance and risk management reporting solution that helps financial institutions bring transparency and control to their trading activity in a cost- effective environment.

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