firms and determining how those differences are related to subsequent performance. finally, we provide feedback to the institutions involved and often share the insights gained with other institutions not in the study. horizontal reviews can involve major commitments of time and resources, but they help both managers of financial institutions and supervisors by revealing the range of practice in the industry and by providing useful information about the strengths and weaknesses of alternative approaches. when focused on large, internationally active organizations, as was the case with the ssg report, these reviews can offer insights that bear not only on the safety and soundness of individual companies but also on the maintenance of overall financial stability. although the ssg report covered a group of the largest banking and securities firms, based on our own supervisory experience at the federal reserve, i believe the lessons of that report have relevance for financial organizations of all sizes and scope. in reviewing these lessons, i will concentrate on four categories of risk - management practices : risk identification and measurement, valuation practices, liquidity risk management, and senior management oversight. risk identification and measurement for risks to be successfully managed, they must first be identified and measured. recent events have revealed significant deficiencies in these areas. notable examples are the underestimation by many firms of the credit risk of subprime mortgages and certain tranches of structured products. other firms did not fully consider the linkages between credit risk and market risk, leading to mismeasurement of their overall exposure. firms differed in their susceptibility to these problems ; however, some were more disciplined in their approaches to identifying and measuring risks and thereby gained a better understanding of the risks of some complex securities, particularly in highly stressed environments. this fuller appreciation of the risks involved led these firms to limit their purchases of such securities or to provide additional capital and liquidity backstops. the ssg report notes that some institutions took an excessively narrow perspective on risk with insufficient appreciation of the need for a range of risk measures, including both quantitative and qualitative metrics. for example, some firms placed too much emphasis on the mechanical application of value - at - risk or similar model - based indicators. sophisticated quantitative tools and models play an important role in good risk management, and they will continue to do so. but no model, regardless of sophistication, can capture all of the risks that an institution might face. those institutions faring better during the recent turmoil generally placed relatively more emphasis on validation, independent review, and other controls

jwala rambarran : the changing face of supervision feature address by mr jwala rambarran, governor of the central bank of trinidad and tobago, at the caribbean group of banking supervisors xxxii annual conference, port of spain, 5 june 2014. * * * good morning, to all our friends from the caribbean and beyond, i extend a warm welcome to trinidad and tobago. for the next two days, you will be discussing, “ the changing face of supervision ”. to us, it ’ s a catchy theme, but just say this to the man on the street here in port of spain, in kingston, or even in castries, and they will see little connection to their lives. but if their bank crashed next week and they can ’ t access their life savings, the man in the street would immediately demand an explanation. fingers would naturally point towards government who would rightfully say “ talk to central bank, it ’ s their job ”. the “ who ” is to blame would be of little comfort to the man in the street who has lost his money. however, someone must be called upon to account for the bank failure and, of course, that “ someone ” will be us, the central bankers. if i sound like i ’ m talking from experience, well, you all know that i am. following the collapse of clico, our largest insurance company, we at the central bank of trinidad and tobago, have been listening to these sentiments repeatedly over the last five years, and we know many of you in this room have also had to deal with the contagion effects of the clico crisis which sent shockwaves throughout the caribbean. so, i therefore want to give you three messages, as we begin this conference on the changing face of supervision. 1. first, let ’ s consider clico and its contagion as an early warning for us in the caribbean region. let ’ s look at it as a warm up for something even bigger, as the risks to the regional financial system are ominously gathering in the distance... this leads to my second message. 2. our protection against those gathering storms is changes in the approach to supervision … and finally my third message. 3. the changing face of supervision is each one of you in this room. i ’ m going to start with my third message first – you – the face of supervision, as each of you represents the change that needs to occur in supervision. as supervisors