**4. Approaching the economic crisis: 2008 – today…**

Although Risk Management has been for over a decade a central part of many organizations' strategic management [15], the trend towards adoption of more sophisticated techniques and technology, together with the bet for new models that can improve firms' Risk Management has been gaining pace. In general, the last years have seen rapid growth as concerns to the development and improvement of Risk Management tools which facilitate the evaluation of customers' credit worthiness, prediction of customer behavior and propensity of default [16-21]. Until 2008, a significant amount of investigation efforts within the financial environment had been towards providing assistance to banking agents on their daily decisions [22], but with the emergence of the economic crisis, researchers and practitioners began to strive even further to excel at their developments and come up with innovative and more diversified portfolios of Risk Management tools.

The economic downturn is seen as a worldwide phenomenon started in the US in 2008 and still ongoing. It is widely thought to be the result of a complex conglomerate of factors [23- 26]. (Figure 3)

Such factors have been triggered by mistakes or defaults in Regulation and monitoring, as well as in the market behavior. Low interest rates jointly with financial innovation and globalization trends have evolved towards leverage and underestimation of liquidity and credit risk. The outcome of this mix has been excess indebtedness and excess asset valuation which has derived into a context characterized by: bankruptcy, recession, inflation, collapse in the Stock Markets, currency exchange volatility, dramatic decreases of monetary policy rates, slowdown of demand and consumption, boost of unemployment rates and shortages in profits.

**Figure 3.** Possible root causes of the crisis

derive significant level of profits.

management and a usable model.

responsiveness to potential problems.

26]. (Figure 3)

**3.5. Supervision = Ongoing monitoring** 

they need to take a decision and they look for advice.

**4. Approaching the economic crisis: 2008 – today…** 

innovative and more diversified portfolios of Risk Management tools.

The level of risk undertaken by a firm derives from its ability to monitor it. High capability to monitor risk helps to optimize the risk taking process. Risk monitoring should not only rely on the automated output of the VaR calculation, but should also be supported by a risk management function that is able to do a correct interpretation of the results. Risk monitoring aids in risk assessment and can result invaluable to senior management when

At this point it is worth pointing out that although risk monitoring has mainly focused on risk avoidance, there is another dimension: "the upside" or opportunity aspects for risk. This dimension is scarcely looked at, but on the other hand it can, if appropriately managed,

Most frequent means to monitor risk consist on processes, reports, and discussion venues. However to ensure their reliability, these must be backed by a solid function of data

All in all, monitoring implies tracking and thus, the more effort and time consuming this task requires, the later the relevant information will pop up and the lower the level of

Although Risk Management has been for over a decade a central part of many organizations' strategic management [15], the trend towards adoption of more sophisticated techniques and technology, together with the bet for new models that can improve firms' Risk Management has been gaining pace. In general, the last years have seen rapid growth as concerns to the development and improvement of Risk Management tools which facilitate the evaluation of customers' credit worthiness, prediction of customer behavior and propensity of default [16-21]. Until 2008, a significant amount of investigation efforts within the financial environment had been towards providing assistance to banking agents on their daily decisions [22], but with the emergence of the economic crisis, researchers and practitioners began to strive even further to excel at their developments and come up with

The economic downturn is seen as a worldwide phenomenon started in the US in 2008 and still ongoing. It is widely thought to be the result of a complex conglomerate of factors [23-

Such factors have been triggered by mistakes or defaults in Regulation and monitoring, as well as in the market behavior. Low interest rates jointly with financial innovation and globalization trends have evolved towards leverage and underestimation of liquidity and credit risk. The outcome of this mix has been excess indebtedness and excess asset valuation which has derived into a context characterized by: bankruptcy, recession, inflation, collapse in the Stock Markets, currency exchange volatility, dramatic decreases of monetary policy rates, slowdown

of demand and consumption, boost of unemployment rates and shortages in profits.

In order to recover from the crisis, regulators and country heads worldwide have convened on the need of regulatory changes to reform the market risk – Basel III. But restructuring the financial sector jointly with strengthening international regulation policies are necessary but not sufficient conditions to reverse the economic situation. These need to be supported by financial institutions' risk management models.

Consequently, awareness of the fact that a risk culture can constitute a very important safeguard against financial losses and collapse has risen amongst industry players. In particular, Banks and most financial entities have demonstrated particular high interest in the last years on the implementation of appropriate operational and control models aimed at an adequate management of risk.
