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The rise and rise of the risk manager

First he sat in the back seat, then he had his foot on the brake, now he's got one hand on the steering wheel! Is there no end to the risk manager's advancement into every aspect of risk-taking in a financial firm? Next he'll be right there in the driving seat, with traders, salesmen, corporate financiers and chief financial officers doing his bidding. So, is the risk manager turning into something else? By David Shirreff

Why did Swiss Bank Corp managers take so many of the key positions in the newly merged United Bank of Switzerland? One suggestion, which they won't comment on, is that SBC far outshone its bigger rival Union Bank of Switzerland in risk management and control.

As an example, there were rumblings about Union Bank's equity derivatives and equity convertible books, regarded by the market as "brave" and "adventurous" (in other words "mispriced") which were suddenly shut down in October. The extent of losses hasn't been made public.

Can this be the biggest instance to date of a risk management team providing its firm with palpable shareholder value ­ in this case a strong negotiating position going into a merger?

If so it gives those at the leading edge exactly the argument they need to explain why risk managers aren't just in-house policemen, they're portfolio optimizers: their understanding of risks can put a firm in the best position to enhance its earnings according to its overall risk-appetite.

Tim Shepheard-Walwyn, head of risk identification at SBC in Basle, argues that risk management, (a) gives comfort that the bank is controlled, (b) defines an operating band within which the bank is prepared to accept volatility ­ its risk appetite,(c) helps you use that appetite in the shareholder's interest, improving the quality of earnings that you generate.

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