One year after pushing into risk management consulting by hiring six principals from Emcor Eurocurrency Management Corp., Ernst & Young is noting a shift in the types of services clients are demanding.
"We're at the threshold of a new approach-a methodology for managing risk with new capabilities," said Robert J. Baldoni, a New York-based partner with Ernst & Young. "The use of value-at-risk measurement is the single greatest advance in management."
Value-at-risk involves pricing services and accounting for holdings on the basis of how they expose the financial institution to potential losses. For banks, arriving at such valuations can be difficult, but the technical community is responding with software that can help pinpoint risk exposure better than ever before.
Part of the mission of Mr. Baldoni's group is to match banks with the right software vendor.
Ten years ago, assessing risk management needs was "more of a detective process," Mr. Baldoni said. "You interviewed clients, assessed their risk, and built from there."
He said measurements of risk tended to be relatively "arbitrary."
But that has changed. As tools for measuring risk have improved, banks are able to make better decisions about their exposure to potential losses.
Mr. Baldoni, who has 22 years of experience in the risk management field, was a member of the Emcor global risk management consulting team hired by Ernst & Young last year. Mr. Baldoni, 44, had headed that group since 1986.
The Emcor group specialized in systems to manage currency, interest rate, and commodity risk.
The group also pioneered corporate applications with value-at-risk methodologies.
It is this expertise that the group is building upon in its dealings with banks, Mr. Baldoni said.
Bank risk in recent years has become more diverse, he said. Banks "tend to have defined exposures driven by the operational environment." As technology catches up with the need for risk management, banks are improving their yields and returns accordingly, Mr. Baldoni said. "I can tell you to do 100 wonderful things but if the tools aren't there, I've failed as a consultant," he added.
Ernst & Young's risk management practice is divided into four segments: dealer, commercial banking, asset management, and end user. Each has its own marketing focus.
The unit helps banks identify risks by first locating activities most likely to create risk. It then looks for technology tools to help quantify exposure.
"Each solution is different" and its characteristics are defined by the size of the financial institution, said Mr. Baldoni.
Next the company implements "a performance measurement system, and that's a definition of success."
