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Archive » September 2020 » Swan color, extreme events and strategic risk. What banks can learn from Covid-19

Swan color, extreme events and strategic risk. What banks can learn from Covid-19

Marco Di Antonio
September 2020 - n. 9
Keywords: Pianificazione strategica, rischio strategico, Covid-19
Jel codes: G21, G28, I18

The exposure of the banking system to extreme events is increasing. These are risks with very low probability and very high impacts, frequently called «Black Swans». After the Great Financial Crisis and Brexit, Covid-19 comes as the latest example. Since these events are very difficult to foresee, they issue a challenge both for the strategic planning systems and for the risk management systems of the banks. Banks are facing the effects of pandemic with a good resilience. However, they should learn from the «case-study» of Covid-19 how to improve their systems. Banks should increase their knowledge of these events, that are different from each other («different colours» of the swans). After that, they can identify the most suitable controls and management tools. In particular, the «qualitative approach», i.e. process management techniques, seem to be more effective than the «quantitative approach», i.e. risk measurement models.

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