Red-Blooded Risk: The Secret History of Wall Street

Back Office

This is when and where back-office risk management was born. Two other institutions that were important early on were Bankers Trust and Citibank. Both were commercial banks with strong traditions of financial control. Bankers Trust was even more aggressive than JPMorgan in trading and structured products. Citibank was a huge trader in FX, but otherwise more inclined to make its risk errors lending money, especially real estate and emerging market loans, than trading derivatives.

Most of the risk management jobs in finance today are in the back office. When I was a finance professor, most students wanted to get the glamorous, highly paid front-office jobs. I've always counseled the advantages of the back office to most people. The pay is lower, but the hours are less and the life quality is generally higher. Advancement comes from ability, not luck or politics or competitive success. Careers are longer and more stable than is usual in the front office. There is genuine scope for innovation and teamwork, even if no one outside the back office will ever appreciate it.

Back-office risk management means compiling what has become a huge volume of risk reports for decision makers, regulators, and investors. Risk IT people build the computer systems, risk controllers get the data right, and risk reporting specialists know how to put it together. Within risk reporting there are regulatory experts, especially in Basel II and Basel III capital rules, and people who specialize ...