The Volatility Paradox: A Special Report on Risk Management

Regulators and academics are starting to look at low volatility as an integral part of the buildup toward financial meltdowns.

Banks are going to have to work harder next year if they want to continue to pass the Federal Reserve Board's annual stress test exercise.

In a financial bubble, assets are overpriced and credit overextended. Today, lawmakers and banking regulators are inflating another kind of bubble by overcompensating for past sins, says risk management expert and banking veteran Richard J. Parsons.

Related: The Volatility Paradox: A Special Report on Risk Management

If done right, the Fed's stress tests will motivate a renaissance in enterprise risk assessment, breaking the black box and bringing needed transparency to banks' exposures.