The Joint Forum’s study suggests that no single model for organising an integrated risk management function has become dominant. In some financial organisations, the function may exercise a considerable degree of control over individual businesses. In others - and especially in insurance companies - local business units continue to operate autonomously to a great degree. Yet nearly all firms that establish integrated risk management units are highly dependent on the quality of their information technology to collect, analyse, and report firm-wide data efficiently and effectively. Some participants have found that the greatest challenge in developing a centralised risk management structure lies in constructing compatible and efficient management information systems across all of their businesses. As a result, they devote substantial resources in terms of personnel and expenditures to the maintenance and enhancement of their management information systems. b. Risk aggregation into a single measure  Collecting risk data across many business lines has catalysed further efforts to aggregate those measures of risk by quantifying them in a rigorous fashion. This is the second major risk management trend identified in the Joint Forum report. The quantification of risk is certainly not a new concept in the insurance industry. Actuaries have long sought to estimate the likelihood of various events taking place. In recent years, however, we have seen financial risk managers and researchers apply mathematics, statistics, and modelling to many risk exposures that were previously not thought to be readily quantifiable.

Although the borrowing component in investment property financing tends to be lower than in owner-occupied real estate, domestically focused banks are exposed to this segment. One-third of new mortgages are issued for residential investment property, yet the affordability risk for such property owned by private individuals is roughly as high as for owner-occupied real estate. Moreover, a correction in this segment can affect other real estate market segments, via changes in market confidence and expectations (spillover effects). So we need to keep a close watch on the residential investment property segment. A second risk arises due to falling liability margins in an environment of low interest rates. To offset these, a bank essentially has two options – apart from increasing its lending interest rate. Both options are associated with higher interest rate risk, which in turn increases the risks to financial stability. First, it can grant a higher proportion of long-term loans at higher interest rates, as they generate higher interest revenue than short-term loans. However, this also increases the so-called maturity mismatch.6 The greater the maturity mismatch, the higher the interest rate risk, and thus the potential economic losses for the bank in the event of a sudden interest rate rise. This is because the larger the maturity mismatch, the quicker the rise in refinancing costs compared to long-term fixed interest income when interest rates go up. Second, a bank which has hitherto hedged against interest rate risk might be tempted to dispense with such hedging, and the associated costs.