Interesting FT Article: Banks 20 Years behind Aviation in Risk Management

There was an interesting article by Caroline Binham in last Mondays FT about a recent research paper undertaken by Corven.  This advisory firm stated that the largest banks and insurers are at least two decades behind their peers in the aviation industry in terms of managing risk.

As some of you will know my early background was in the Military Aviation business where managing risk was perhaps the number 1 priority.  The Fast Jet world is a dangerous business and the consequence for failures in people and procedures were immensely high.  In war-time it’s about being able, wherever possible, to live to fight another day whilst completing the mission.  In peace-time it’s about ensuring the safe-conduct of military flying tasks.  People are constantly trained to be able to handle the pressure of working in such an environment and there is a committment to safety in every task undertaken.  Everyone is keenly aware of the consequences of failure and whilst the safety of aircrew has improved tenfold since the 40’s & 50’s there is no-body who has a career in such an environment without being touched by the loss of people & friends from training accidents or war-time missions.

Such experiences tend to drive a culture of constant improvement and adherence to principles of safe-conduct.  Whenever a crash or even near-crash event occurs there is a real focus on learning from the experience, sharing the learning and asking questions about how things could be done better going forward.

As the Corven piece points out there appears to be a very different culture with the Banking sector.  Whereas the Aviation Industry is very pro-active in managing risk the Banks appears to be demonstrably reactive to the task.  Why is that?  Is it culture, is it incompetence, is it wilful negligence, or is it purely an accepted risk that things will go badly wrong?  Have the numbers got so big that people are just dis-connected from the reality of it all?

I’ve said before that it was that grounding in risk-management principles that allowed to me to survive the brutal learning curve of a new trader.  By managing risk first I was always able to live to fight another day and I constantly implore new traders to do the same.  For any new traders reading this I would recommend taking a leaf out of the Aviation Industry’s approach to risk management rather than the Banking Industry’s approach.  Be pro-active, take responsibility and always be asking how could you improve your risk-management principles.  A good place to start is with the Atul Gawande Book The Checklist Manifesto.  I’ve written about this book before and the positive impact it can have on your trading.  Make sure you read it.

You can read the full FT article here