Think Flat

Suvendu, theoretically, I see your point in a sense that information (and its management) is indeed a cornerstone of effective risk management; and therefore, social networks can provide another dimension of information/data to a risk practitioner. Any effort leading to a valid increase in my multi-variate equation is welcome. My vote is a yes!

Well…to start with I guess we already have an integrated set-up that shares vital information for financial institutions on exposure to risk. This need not be done in an open area, as portfolio / business management of each financial institution differs in style and principle. For example standard chartered is one bank that is averse to equity, but American banks cannot think of anything else but equity. In US we have an SSN that will help a lender get the credit scores…in India banks share the credit details of borrowers among themselves (in the future may be UID would help us)…we have visa / master that have credit records of its subscribers.
Mutual funds do let us know their exposure to markets and particular stocks on a monthly basis in India…but this is due to force and not voluntary. Bank treasuries across already work on herd mentality. A fine example in India is when Biocon went public, not many understood their business, but I heard banks say… I will invest because the rest are investing…social networking on this case is bad if the investment fails.
Will a social network help??? I guess we already have one…do we have to make it public??? I guess not.

Thanks Ravi for summarizing the context in financial engineering terms. An ERM program matures with more flexibility to absorb information related to relevant factors- be it external or internal. Challenge would be to reach to that information sooner.

@Srivats - Thanks for the interpretation provided. Though the context is about understanding each other better, it is never to share the core principles, strategy on portfolio, customer etc. Those are already shared at a unified system via credit scoring or indirectly via the MF cues. But the essence of this discussion would be to address the risk function intricacies, controls, methods (high level), challenges, imperatives etc. On that ground, I hardly see the role of a credit score number (needless to say that scoring models of rating agencies are already under scanner during this crisis) in this discussion.Herd mentality as exmplified by you is relevant to global financial market and that is where the concentration risk breeds; financial institutions need to have limits on concentration which is getting addressed broadly in impending regulations across western countries.

This only adds to the chaos because social networking is ad-hoc in nature. Again, what frameworks are you talking about here ? Specifics please. A "mock" use cases please. Also, can you provide a "mock" use case for your negative answer ?

This is too vague...

Sri- when you said vague, I presume you are against the idea. Well, let me put a case and challenge before you. What is the best way to counter the contagion observed during this crisis? Don't you think certain types of risks, which are fatal and grow beyond enterprise boundary, need a special attention at a community level. We can't just leave those to govt sponsored regulators who wake up during post-mortem. At certain part of the world, this sounds funnny, but I believe best practice sharing on some of the burning challenges in risk function does help stabilizing the financial system as a whole - this in fact is already happening in matured financial community of NY. Now, do let me know your counter-view with an convincing example.

The main reason for the recession was greed to make fast money- for the organization and also for the controlling individuals, unmindful of the corporate social responsibilities. The back of the minds of the erring officials was the possible bail out by the governments using tax payers' money, therefore risks were taken and later they were tagged with fashionable words like " toxic" etc.It is not that the professionals at large transnational organisations do not know the methods to get required inputs to analyse the risks. Their being part of a social network can of course bring in informal undertone in the important interactions among risk professionals. But, unless the true undertone of such congregation is going to be the true corporate social responsibilities in the form of responsible handling of public money- the effort will downgrade to a mere greed-analysis instead of risk-analysis. My reaction to the proposed social network is "yes" with the above caution.

Thanks Partha for this fresh perspective to above discussion. Few days back, I had a chance to listen to Vikram Pandit and he was exactly pointing what you just mentioned- a sustainable profitability & growth of Citi and the community Citi serves. Just securing Citi does not make sense when the communities around or society at large are not getting better. Risk based growth with a human face (CSR) is what organizations need to cultivate and I completely agree with you. Now the challeng would be how we integrate & quantify the CSR factor to my risk based strategy discussion. I am proposing an open debate in "Think Flat", would like to take this to GARP chapter as well. Any thoughts Partha, this being an important point raised by you.

Yes ofcourse the social networking will work in risk management. The knowledge sharing is the best practice which we will have to think of utilising through the social neworking!!
Mould the system with the an experience knowledge for a better result.

Following points come in my mind in relation with integration and quantification of CSR.
You have rightly pointed out that such efforts cannot wait for Govt. sponsored regulators as the countermeasures during post facto scenario can only drain resources and the basic purpose is defeated. I feel , instead of regulation at the effect-end, it is better to have regulations at the effort-end. Let me explain the same below.

Any company may take the risk to grow with following riders,

a. Let them plan a growth in profit of say 15% over the average profit achieved during last five years/ since inception or the actual projected growth in the segment- whichever is higher.
b. In case , the profit ends up in more than the above, the difference may be
equally divided into two. One half can be donated to the national funds, like Prime Minister’s relief fund or National disaster management fund etc. and the other half can be equally shared among all the employees of the company , irrespective to their position.
c. The company can be offered suitable incentive by the govt. against
quantum donation in the form of operational benefits like excise holiday for a prescribed period , power tariff discount , discounted loan from nationalize bank etc. However, the total such incentive has to have a ceiling which can be determined through discussions.
d. There should not be any individual incentive to the top management
except the declared dividend or bonus shares, as applicable to the overall shareholders, against their share holding.
e. Govt. empowered GARP chapter along with designated ICAI team can
interact with the company , who register negative variances in two consecutive quarters in terms of pro-rata profitability in operation and growth.

I am not a Risk professional. Having come from marketing & training background I have used my common sense to arrive at the above points. You may excuse me for the absence of words/jargons familiar to Risk professionals & please, note the undertone of my communication. The above are only rough outlines- may be a spark only to facilitate further debate.

Social Networking can be definitely work in risk management. I came across a report in the newspaper on the day following actor Vishnu Vardhan's sad demise. The general public recieved information regarding areas where there was disturbances. This was done with the help of social networking. Citing this example I believe there is great potential for Social networking to be used in the field of risk management.

Rithun- you mentioned a scenario which signifies how information disseminates via social networking. Now, let me give you a great story in US from the land of MIT. MIT research team could trace 10 red ballons, distributed across US by Pentagon, via excellent use of social networking. They did it in close to 9 hours- unbelievable, is n't it.

Story unfolds here & here.Do comment back once you read through.

@Partha- You have proposed steps which will control the greed in corporate world and will also help social causes. However, in capitalist society, it would be very difficult to define profit limits and also very very difficult to ask companies to compensate high performer with share options only. Recent examples in US prove that- banks under TARP guideline have started returning money since their executive compensation are controlled by regulators. To have a sustainable growth within adequate risk, organizations need to do followings acoording to my judgement:-
1. Link the profit in consonance with risk - what we call technically the risk adjusted return and that should be a important parameter from bottom up till enterprise level.
2. Profile of corporations should be judged on CSR contributions like the way they are judged for innovation, profitability, HR practice etc.
3. CSR contributions should be judged not just with the money parked for them, rather the change it has brought to the issue / society for which the money has been utilized (feedback from society would help at this point)

These are the ones which come to me right now, but I am opening up to you for further comments and different perspective.

Yes...in someway....
If you stressed out by the daily work then you have to go through....frnds....and also unkown person who is there only for you ...just listening....

Thanx i love the Social Network ....

This is the cheapest way of publishing urself....

It can also n thats it.....