McKinsey on Risk

Risk Working Papers

McKinsey’s Risk Working Papers present McKinsey’s best current thinking on risk and risk management. They represent a broad range of views, both sector specific and cross-cutting, and are intended to encourage discussion internally and externally.

Recent articles

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The future of bank risk management

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Banks have made dramatic changes to risk management in the past decade—and the pace of change shows no signs of slowing. Here are six initiatives to help them stay ahead.
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Managing supplier risk in the transportation and infrastructure industry
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Introducing systematic risk-management tools, particularly in the supplier-selection process, could help mitigate problems associated...
Managing the people side of risk
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Managing the people side of risk
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Companies can create a powerful risk culture without turning the organization upside down.
Voices on bank transformation: Insights on creating lasting change
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Voices on bank transformation: Insights on creating lasting change
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This paper draws together the perspective of McKinsey experts on organizational health, risk culture, and digital transformation...
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People and talent management in risk and control functions
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Risk-management functions in corporates and financial institutions face more and more challenges to recruit, develop, and retain...
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A marathon, not a sprint: Capturing value from BCBS 239 and beyond
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Meeting more stringent regulations requires banks globally to spend billions of dollars. Yet with the right long-term strategy,...
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An executive’s guide to machine learning
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It’s no longer the preserve of artificial-intelligence researchers and born-digital companies like Amazon, Google, and...
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Improving disaster recovery
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When natural disasters strike, governments step up. Here’s how they can improve the odds of a successful long-term recovery....
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Repelling the cyberattackers
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Organizations must build digital resilience to protect their most valuable information assets.
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Developing robust PPNR estimates
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This white paper is an in-depth review of what banks need to do to meet increasing expectations for pre-prevision net revenue...
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Taking the stress out of operational-risk stress testing
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Financial institutions are facing heightened supervisory scrutiny, but those that establish a structured and calibrated approach...
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The age of utility: Are you a force that shapes the power markets, or do the forces shake you?
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The rapidly changing energy business environment offers significant opportunities to transform incumbent utilities into more...
Report
McKinsey Capital Management Survey 2015
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Our annual survey on capital management at leading banks gathered data from 15 German banks. Although they have substantially...
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P&L forecasting–the new horizon of stress testing, and beyond
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Banks have not invested much into modelling capabilities for profit and loss, particularly in Europe. If they want to anticipate...
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A best-practice model for bank compliance
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Tighter compliance regulations have challenged financial institutions in a variety of ways. Yet those who adapt best may enjoy...

2014 article archive

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Enterprise-risk-management practices: Where’s the evidence?
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A survey across two European industries.
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Europe’s wholesale gas market: Innovate to survive
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The risks against a structural long position have increased. Here’s how major gas distributors can react through improved...
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Introducing a holistic approach to stress testing
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Seven steps may help banks develop better stress tests.
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A time for stress: The challenges facing Europe's banks
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In November the European Central Bank (ECB) will officially take overall responsibility for the supervision of major European...
Report
Risk in emerging markets: The way forward for leading banks
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This paper looks at challenges facing emerging market banks after a decade of outstanding growth and makes a series of recommendations....

2013 article archive

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Between deluge and drought: The divided future of European bank-funding markets
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Despite some apparent short-term relief, culminating in the repayment by banks of some of the funds advanced to them by the European...
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Risk-based resource allocation: Focusing regulatory and enforcement efforts where they are needed the most
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Risk-based allocations of scarce resources is a necessary discipline for governments to demonstrate that they are becoming more...
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Getting to ERM: A road map for banks and other financial institutions
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This working paper contains a diagnostic framework for assessing an organization's ability to manage risk at the enterprise level....
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Concrete steps for CFOs to improve strategic risk management
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The role played by CFOs give them a natural, and perhaps unique, “in” when it comes to incorporating risk concerns...
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Between deluge and drought: Liquidity and funding for Asian banks
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Strategic management of funding and liquidity will play an increasingly important role for Asian banks. Management should start...
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Managing third-party risk in a changing regulatory environment
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It makes pretty sobering reading—financial services firms in the US face an unprecedented extension of their risk management—not...
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Next-generation energy trading: An opportunity to optimize
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The report explores the dilemma facing energy trading companies as they address the legacy issues of complex systems, high costs...
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Between deluge and drought: The future of US bank liquidity and funding
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This working paper discusses the funding structure of large US financial institutions which are undergoing a dynamic shift.
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The hypotenuse and corporate risk modeling
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This working paper uses the concept of the hypotenuse to explain how companies facing several risk variables often overlook the...
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Strategic choices for midstream gas companies
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This working paper examines the strategic dilemmas facing European midstream gas companies and suggests ways they can address...
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Strategic commodity and cash-flow-at-risk modeling for corporates
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This working paper describes how corporates have been adapting and evolving their use of quantitative models derived from the...

2012 article archive

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Managing market risk: Today and tomorrow
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A new survey shows some common themes and some interesting variances in the ways that big banks deploy Value-at-Risk, the industry...
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Compliance and control 2.0: Unlocking potential through compliance and quality-control activities
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This report is a comprehensive look at how banks can turn a necessary set of regulatory tasks into a meaningful strategic advantages....
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Driving value from postcrisis operational risk management
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Banks and other financial institutions can generate important improvements in their operating model if they focus more on areas...
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Day of reckoning for European retail banking
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This report captures months of work assessing the impact of regulatory changes, their likely effects on bank ROEs and what banks...
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Strategic insight through stress-testing: How to connect the 'engine room' to the boardroom
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This report offers an overview of stress testing as a management and regulatory tool in banking. The report suggests ways that...
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First-mover matters: Building credit monitoring for competitive advantage
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The paper assesses the challenge facing banks' core credit operations, which are under severe pressure from regulators and market...
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Capital management: Banking's new imperative
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The report is the latest version of our annual survey on capital management practices at leading banks and highlights some of...
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Commodity trading at a strategic crossroad
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This report calls attention to the pressures faced by commodity traders in light of extremely competitive markets conditions...
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Enterprise risk management: What's different in the corporate world and why
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This report captures many years of experience in both the corporate and FIG worlds, explaining what each might learn from the...

2011 article archive

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The use of economic capital in performance management for banks
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Amid heightened concern about the future of regulatory-capital requirements, economic-capital modeling is enjoying a renaissance...
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Assessing and addressing the implications of new financial regulations for the US banking industry
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According to the Financial Services Roundtable, the 2,300-page Dodd-Frank Act mandates more than 200 new regulations and 67 studies...
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Strengthening risk management in the US public sector
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As it seeks to protect the public, government takes on many of the biggest risks around. But the challenges of managing risk...
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Day of reckoning? New regulation and its impact on capital-markets businesses
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New regulation will dramatically lower returns in capital markets businesses. Banks can take some steps to ameliorate the effects,...
Article
New credit-risk models for the unbanked
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Lenders can use big data to create meaningful value for their enterprise, better outcomes for borrowers, and significant social...
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Good riddance: Excellence in managing wind-down portfolios
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Around the world banks are shedding assets. A new paper looks at the practices they are using to preserve value.
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Mastering ICAAP: Achieving excellence in the new world of scarce capital
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In the wake of the financial crisis, regulators have put most of their energies into Pillar 1 reform. Now they are turning to...

2010 article archive

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Taking control of organizational risk culture
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This paper offers a methodical definition of risk culture and puts forward a model for how organizations can assess their risk...
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A board perspective on enterprise risk management
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Boards play a crucial role in risk oversight. This article outline twelve specific actions corporate directors should take to...
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Variable annuities in Europe after the crisis: Blockbuster or niche product?
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This article examines the potential of variable annuities to become a blockbuster product after the crisis, and considers the...
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After black swans and red ink: How institutional investors can rethink risk management
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This article outlines how institutional investors in particular can improve their risk management practices along five dimensions:...
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Getting to grips with counterparty risk
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Counterparty risk stalks the financial system. In this 16-page client-ready article, the authors outline a four-step approach...
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Top-down ERM: A pragmatic approach to managing risk from the C-suite
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An ERM system that quickly enables risk thinking in the C-suite should focus on the "top-down" elements of risk management in...
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Credit underwriting after the crisis
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This document outlines the key structural trends that are reshaping banks' credit underwriting processes and discusses practical...
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Basel III and European banking: Its impact, how banks might respond, and the challenges of implementation
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Basel III will have significant impact on the European banking sector. We estimate that by 2019 the industry will need about...
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Getting risk ownership right
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In the new risk paradigm, an organization will take on only those risks for which it has three core lines of defense—a...

2009 article archive

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Upgrading your risk assessment for uncertain times
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In conditions of high uncertainty many companies are asking increasingly demanding questions about risk assessment. This paper...
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Responding to the variable annuity crisis
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This paper examines the crisis faced by the U.S. insurance sector as the consequences of the huge growth in variable annuities...
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Best practices for estimating credit economic capital
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This paper looks at the use of capital models in banks; it shows that there is a wide range of practice, with banks using an...
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Bad banks: Finding the right exit from the financial crisis
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This working paper explains the different options available to banks and governments considering using a ‘bad bank’...
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Risk modeling in a new paradigm: Developing new insight and foresight on structural risk
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Why did sophisticated risk management tools fail to predict the 2008 crisis? Many have argued this question at length, and one...
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The national credit bureau: A key enabler of financial infrastructure and lending in developing economies
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The challenges of lending in developing economies are unique. Establishing a credit bureau from scratch in an emerging market...
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Capital ratios and financial distress: Lessons from the crisis
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Global regulators are in the process of imposing new capital requirements intended to result in both higher and better quality...

2008 article archive

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The risk revolution
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This paper discusses the historical emergence of risk management, reviewing a number of key developments and their impact on...
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Making risk management a value-added function in the boardroom
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This working paper addresses the role of the Board in understanding enterprise risk management (ERM) and governance.
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Incorporating risk and flexibility in manufacturing footprint decisions
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This working paper illustrates some of the pitfalls companies have encountered in optimizing manufacturing footprint, and it...
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Liquidity: Managing an undervalued resource in banking after the crisis of 2007-2008
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This paper examines liquidity management in banks in the context of the credit and liquidity crisis that began in 2007.
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Turning risk management into a true competitive advantage: Lessons from the recent crisis
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While there are important lessons to be learned from the recent turmoil in credit and liquidity, the core message of this paper...
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Probabilistic modeling as an exploratory decision-making tool
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This working paper highlights how probabilistic modeling can fail when used in the wrong way. It explains two different relevant...
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"Option games": Filling the hole in the valuation toolkit for strategic investment
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The paper describes how strategic decisions can benefit from analysis using techniques drawn from both real options and game...
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Shaping strategy in a highly uncertain macro-economic environment
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This working paper sets out an approach for strategists to stress-test their corporate strategy for macroeconomic uncertainty,...