The truth be told. Since 2008, the financial world has been marked by a number of crises, all sharing the same features: Household Indebtedness, Corporate Debt, and Countries’ Debts. Some more indebted than others, but the truth is that scholars agree that such a large debt is not the outcome of the economic model or the development model but rather the result of «human error» with two concomitant factors: Crisis of Leadership and Crisis of Values which underpin the Crisis of Confidence. Ultimately, as noted by Amartya Sen, the problem continues to be the Human being himself, as a political or business leader, as a key element of a ruling class with broad-ranging powers to destroy and split instead of uniting, doing good, and caring for others seeking for the common benefit…
«In the end –as admitted by Amartya Sen-Humanity is responsible for mishandling the economy and for the poor organization of what he envisions and pursues» without understanding or valuing what, as the French biotechnologist Pierre Lacoste highlighted: «Humanity is everything, apart from it there is no good hope.» Yet….
In light of the most lucid and reputable views, there are two key lessons we should learn well and fully, while becoming aware of, preventing, and overcoming them with scientific and technical basis as well as with moral suitability; such lessons are:
1. Financial Markets cannot and should not be run at free will since self-regulation is not and will not be an expression of transparency.
2. The problems affecting the financial markets have been caused by moral hazard, asymmetric information and the multiple failures of the Free Market and governments at the expense of better regulation and supervision of financial intermediation.
In this regard, the approach proposed by Nobel Prize in economics Edmund Phelps is quite right. He asserted that: «Only dynamic economies fostering entrepreneurship produce tangible benefits and opportunities for all. And for there to be prosperous ventures invigorating the economy with their best performance, we need: more reliable and robust institutions, better regulations, and more overall training.»
Considering the implications caused by the Global Financial Crisis and in light of the Basel Accords I, II and III, the Regulating Agencies for Financial Institutions of the Americas have adopted standards and procedures to regulate Integrated Risk Management on the basis of Strategies, processes, operations which allow to identify potentially damaging events it in order to manage risk appetite and tolerance and thereby provide reasonable assurance to achieve the objectives of financial institutions.
The recommendations made by the IMF on the challenges facing financial institutions to counter the 2014- 2015 crisis are very interesting: Increase Liquidity and Placements based on a good credit evaluations. Reduce operating and financial costs. Access innovation and cutting-edge technology. Increase Asset Management under Basel III. Capitalize profits to fund more resources, and strengthen Heritage and Intellectual Capital to have good professional management. They are challenges worth fully accepting and applying with technical and moral suitability.
Corporate and Financial Management and Applied Professional Research with successful economic and financial results allow us to share SEVEN key strategies to be taken into account based on the complexity and size of the Market, its operations and services, as are:
1. Professionalize strategic development management based on efficient administrative, economic, and financial performance with value innovation ensuring optimum Integrated Risk Management: Strategic. Tactical and Operational.
2. Clear homogeneous identification of processes with well-defined responsibilities to effectively identify risks in order to align performance incentives with the appetite and tolerance of each risk so as to encompass strategy, compliance, and financial business platform.
3. Establish internal systems to facilitate timely reporting and investigation of illegal and fraudulent acts classified as «questionable practices.»
4. Invest in research and development programs within a Comprehensive Planning System that includes the entire financial business model, not just processes and procedures in the design and implementation of advanced technological tools that facilitate Management Information System suitable for Integrated Risk Management.
5. Regulate and apply with technical and operating expertise a mooring system for internal resources based on a reasonable capitalization Profit (Remnants) of not less than 50% per annum.
6. Count with and apply a suitable and effective Financial Management that allows to have appropriate financial discipline and strength to ensure an efficient reporting of Assets and Liabilities with optimal and sustained Liquidity, Solvency, Efficiency, and Productivity indicators, and sufficient Net Equity as per the Basel III rules.
7. Make Comprehensive Risk Management compatible with the Money Laundering and Terrorist Financing Prevention Systems with good corporate governance practices so as to institutionalize and a holistic Vision and Mission and feedback to the strategic and operational instances of financial intermediation.
Finally, experience has taught us that in a Complex, turbulent, and uncertain world, we need to make Financial Management a genuine process of reflection and action to become ever more Competitive, otherwise, IF WE DO NOT KNOW HOW WE ARE DOING, WHAT WE HAVE, AND WHERE ARE WE GOING, THE PATH WE CHOOSE TO FOLLOW WOULD BE IDLE. OPUS FINIS CORONAT. (THE ENDING CROWNS THE WORK).
ARNOLD ENCOMENDERO D.
«HANDBOOK FOR COMPREHENSIVE RISK MANAGEMENT OF FINANCIAL INSTITUTIONS“