Our Global Risk Management Group
Essential in our approach to risk management is a strong internal control environment with multiple overlapping and reinforcing elements. Our Risk Management Division develops policies and procedures to identify, measure and monitor the risks involved in our global trading, brokerage and investment banking activities. Our approach applies analytical rigor overlaid with sound practical judgment. We work proactively with the business before transactions occur to ensure appropriate risk mitigants are in place. The Global Risk Management Division includes the following groups:
Credit Risk Management
Credit risk represents the possibility a counterparty or an issuer of financial instruments we hold will be unable to honor its contractual obligations to the Firm. Our Credit Risk Management group has global responsibility for identifying, measuring and managing the credit exposure related to our capital markets activities. It includes:
- Counterparty credit analysis and due diligence.
- Assigning internal credit risk ratings.
- Establishing credit limits by counterparty, country and industry group — and reviewing them periodically to ensure they remain appropriate in light of market events or a counterparty's financial condition.
- Monitoring credit exposure on a current and potential basis across all products.
- Managing credit portfolio concentrations across countries, industries and products.
- Recommending suitable policies and guidelines.
We apply an integrated approach to managing credit risk and organize our risk managers into industry and geographic groups. This structure provides us with specialized industry-specific and geographic expertise across all counterparties and capital markets products. In the U.S., our industry teams include:
- Corporates.
- Emerging Markets.
- Financial Institutions.
- Hedge Funds.
- Insurance.
- Investment Advisors.
- Municipals.
- Private Investment Management.
- Special Purpose Vehicles.
Market Risk Management
Market risk represents the potential change in value of a portfolio of financial instruments due to changes in market rates, prices and volatilities. Our Market Risk Management group has global responsibility for identifying, understanding, measuring and managing market risks relating to our trading activities.
We use qualitative as well as quantitative information in managing trading risk, believing a combination of the two approaches results in a more robust and complete approach to the management of trading risk. Quantitative information is developed from a variety of risk methodologies based on established statistical principles. Responsibilities include:
- Analyzing, monitoring and reporting the aggregate market risk of trading exposures.
- Administering market risk limits and the management escalation process.
- Communicating large or unusual risks as appropriate.
- Developing market risk measurement methodologies in conjunction with the Quantitative Risk Management group.
- Developing policies and procedures of the market risk management process.
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Our Operational Risk Management group seeks to minimize these risks through assessing, reporting, monitoring and mitigating operational risks.
Sovereign Risk Management
Our Sovereign Risk Management group is responsible for monitoring the Firm's risk to crisis events and substantial market shocks in emerging market and selected developed market countries and regions. The Firm is subject to country risk — the possibility that political, economic, and social conditions and events in a foreign country might adversely affect the Firm's interests or reputation — as a result of major market fluctuations and to four primary types of risk: default; currency inconvertibility and transfer risk; currency devaluation; and expropriation of assets. The Credit Risk Management Division reports on and monitors the risk related to these or the markets' reaction to these events. Our Sovereign Risk Management group works closely with our other Risk groups to determine country risk exposure, appetite and internal country ratings. We act in an advisory capacity to senior management and business heads regarding the Firm's strategies in emerging market economies.
Quantitative Risk Management
Our Quantitative Risk Management group is responsible for developing, implementing and maintaining the risk methodologies and systems used by our Market Risk Management, Credit Risk Management and Operational Risk Management groups, as well as validating the pricing models used by the various business units of the Firm. Responsibilities include:
- Developing and maintaining risk quantification methodologies supporting market, credit and operational risk — which includes VAR, stress tests, scenario analyses, potential credit exposures and capital allocation.
- Reviewing and approving pricing models and assessing "model risks."
- Developing policies and procedures for model control, participating in model review committees and setting standards for model documentation, testing and review.
- Developing and maintaining the overall architecture of risk systems.