Years ago, as a young trader working short-term markets, Sandie O'Connor walked into her boss's office eager to discuss a trading strategy.
After she reviewed all the upside potential and advocated for her plan, her boss brought her up short with a simple question: "Can you afford to take this risk if everything you know is absolutely wrong?"
O'Connor, who led JPMorgan's Financing and Markets Products division during the worst of the recent financial crisis, says that question became the cornerstone of her philosophy of risk management. "You have to know those risks that you can't afford to take," she says. "If you got them wrong do they debilitate your client or your franchise? If you cannot mitigate them you have no business taking them."
The application of core risk management principles to the financing of securities was a key reason her business weathered the financial storm profitably.
"In one of the most turbulent periods of time, with the demise of one big broker-dealer and the near demise of others, she protected her clients and our bank from all sides," says Heidi Miller, now president of international at JPMorgan Chase.
Last year, the Federal Reserve Board, seeking ways to reduce systemic risk in the financial system, turned to O'Connor to help lead the effort to reduce risk in the tri-party repo market. Her work with the Fed's task force yielded multiple recommendations, many based on systems she initiated at JPMorgan.
According to O'Connor, all can be traced back to a young trader who was asked a difficult question.