What is Risk Management?

Risk management is a structured approach to managing uncertainty through risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources.

Many positions in this field have job titles and duties that are unique to the position field. Included here are job titles such as derivatives risk analyst, market risk analyst, credit risk analyst and portfolio risk analyst. Your role will depend on whether you work for an Investment Bank, Investment Institution or Retail Bank.

Risk managers act as a restraining influence on a bank’s risky activities. They ensure a bank is not over-exposed to plummeting stock markets, or stop huge loans being made to companies on the verge of bankruptcy. They also ensure business continues as normal in the event of operational problems, such as computer system failure or disasters such as a hurricane or terrorist attack.

The risks faced by financial institutions come in several forms, including:

• Market risk: the risk that a whole group of traded financial products (for example stocks, bonds or commodities) falls in value simultaneously because of outside events, such as rising oil prices or terrorist bombs. Also known as ‘systemic risk’.
• Credit risk: the risk that a particular company or an individual will default on their obligation to repay their debts.
• Operational risk: the risk that something might go wrong in the day-to-day running of the bank – from computer failures and floods to employee fraud.
• Reputational risk: the risk that something will happen to damage a bank’s name, such as a high-profile court case against it or damage by association with a client who has done something wrong; it is sometimes considered a sub-sector of operational risk.

Risk has become increasingly complicated thanks to an explosion in the use of credit derivative products – this has been a topical issue in 2008, as reckless risk management has led to overleveraging and a squeeze in the world credit markets.

Using derivative products such as credit default swaps (CDS), banks are able to quantify the risk that a client might default on a loan by selling it on – buyers purchase the right to receive repayments on the loan, but if the borrower defaults, the CDS holder will itself have to pay the amount outstanding back to the lender.

What does a risk management analyst do?

If you work in risk management you will be involved in the following processes:

• Developing and evaluating risk management methodologies
• Assigning credit risk ratings for debt issuers
• Providing financial reporting and risk analytics
• Evaluating and testing pricing models
• Analysing the downside risk from the explosion of new derivative products

If you specialise in market risk you will use mathematical ‘value at risk’ (VAR) models to work out the maximum amount of money the bank would lose in the case of an extreme event, or chain of events, within a particular timeframe. They also work closely with traders to calculate the risk associated with specific trading transactions and typically sit on, or close to, the trading floor.

Credit risk specialists scrutinise company balance sheets and meet company directors in order to determine the organisation’s financial health. As well as looking at a company’s profit and loss accounts, they analyse how a particular transaction affects the company’s solvency.

Operational risk experts review the likelihood of particularly risky events taking place and formulate plans in case they do. If you work in operational risk, you could find yourself doing anything from ensuring the computer backup systems work properly to conducting post-mortems on how well the bank dealt with disastrous events in the past.

Reputational risk specialists endeavour to manage a bank’s image. Few banks employ reputational risk specialists per se: the role is typically dealt with by the public relations department, the human resources department and/or the legal team.
Risk Managers work in an office setting, generally 40 to 50 hours a week, and have frequent contact with traders, investment bankers and compliance departments.

How do I get a graduate scheme / internship / entry level job or career in Research Analysis?

Obtaining a graduate scheme, internship or entry level role in Risk Management can be very challenging and competitive – though very achievable by getting your application, CV, interview and general approach right. You can guarantee that ninety percent of applicants for Risk Management roles will not know how to apply, so getting your application in the top ten percent makes things a lot more achievable.

Approaching the company in the right way will make all the difference. Combining the right approach with a strong interview (and in some cases assessment centre) writ a strong focused tailored CV will go a long way. Make sure you have gone through the free videos on this sight by entering your name and email address in the top right of this screen underneath the video. Once you have filled this in you will have instant access to everything you need to secure your career in Risk Managemnt.

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