The Risk Management Process

Abstract

In Chapter 1 we introduced the four basic components of a conventional risk management framework that can provide discipline in the evaluation of risk trade-offs. This practice is widely followed in the financial services industry — which we again define to include banks, securities dealers, asset managers, insurers, and other nonbank financial institutions — as a way of balancing, continuously and dynamically, the risk and return decisions that are needed to guide risky behaviors. Of course, many aspects of the framework are also employed by nonfi-nancial corporations so that they, too, have some way of gaining control of their risky activities.