You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done
—Kenny Rogers, “The Gambler”
On February 2, 2021, Credit Suisse received Risk.net's Risk Innovation of the Year for a new forward-looking analytics dashboard that helped it monitor controls and shut down operational incidents before they turn into potential loss events.
A matter of months earlier, Credit Suisse had begun deploying a new dashboard for non-financial risk (NFR) management analytics – DNA, for a short – a smart, tech-driven solution to bolster its op risk analytics and monitoring capabilities. The dash’s outputs were designed to give the bank a more forward-looking gauge of its op risks, based on monitoring controls in real time, and reducing the lag in responding to and shutting down operational incidents before they turn into potential loss events. “The way that risk appetite is set in the operational risk space is very much backward-looking. It’s based on incidents that happen, and how that impacts the bank with regard to loss profiles. That’s all very, very important – but, if I’m running a business, I want to know my projections going forward,” argues Barkley. “I like to think about operational risks like running a hedge fund; I want to have all the information in front of me flashing, and I want to know my potential impacts.” – Risk.net
Sounds good, right?
Just 2 months later, it was revealed that a family office called Archegos Capital Management had used massive amounts of leverage to buy concentrated positions in a handful of companies. This turned problematic when ViacomCBS, one of its holdings, announced it was selling shares which caused the stock price to fall. This led Archegos to sell some of its other positions causing other stocks to collapse. Banks that had lent Archegos money – including Credit Suisse – issued margin calls which the firm was ultimately not able to repay.
In a recent WSJ article, they estimated that the losses stemming from Credit Suisse's mistake totaled $5.5bn.
Now Credit Suisse is picking over what went so badly wrong. The central questions include, why did it give the money back to Archegos? And more broadly, why did it back risky bets to a level that went wildly beyond all its stated norms and projections? Bank executives had even received a stark warning a year earlier on how the bank was handling risk—but the recommended changes hadn’t been made. A preliminary conclusion is emerging: Credit Suisse’s creaky risk-management systems didn’t do their job as the bank’s guardrails and left it highly exposed to human errors in judgment, according to current and former people at the bank. – The Wall Street Journal
Life comes at you fast.