One would think that the global financial calamity experienced in 2008 would have been enough to get banks to deal with any weaknesses in their risk protocols and systems. Seems we were wrong. The industry got another huge wake-up with the multi-billion-dollar fiasco resulting from the collapse of the U.S.-based hedge fund Archegos Capital Management. For some of the prime brokers that suffered losses from their dealings with Archegos, the root cause was a major failure of counterparty risk management and a lack of proper risk oversight.
This article reveals how the Archegos debacle exposed cracks in banks’ risk systems. Explore key insights including:
- How bank losses were, overall, the result of a failure to invest in risk technology.
- The fact that XVA capabilities were not appropriately engaged to assess and remediate the risks related to Archegos.
- Significant data quality issues impeded the ability to timely assess counterparty and portfolio credit risk.
- How an ideal counterparty risk management system should work.
- Why having the right risk management capabilities in place can make a huge difference in knowing what to do and when.