ABSTRACT
The global financial crisis of 2008-9 demonstrated that the majority of financial institutions were not able to proactively recognise and effectively manage extreme risks. The financial industry paid a very high price for its poor risk management skills: $2.2 trillion of direct losses and write-downs. Plus many banks and financial firms either defaulted or were bailed out by their governments. Yet new regulation does not address the issue directly, focusing on capital adequacy, liquidity and financial leverage. No constructive action plan to build the proper risk management framework for extreme risk events has been proposed, leaving the industry vulnerable to the next systemic crisis.
