Working papers on risk

Risk working papers and other publications

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. In addition, please see a list of selected publications by practice members in other journals at the bottom of this page, or browse articles on risk in the McKinsey Quarterly.

report | McKinsey Working Papers on Risk, No. 32

Managing market risk: Today and tomorrow

A new survey shows some common themes and some interesting variances in the ways that big banks deploy Value at Risk, the industry standard approach to measure market risk. (PDF–932 KB)more

report | McKinsey Working Papers on Risk, No. 31

Good riddance: Excellence in managing wind-down portfolios

Around the world banks are shedding assets. A new paper looks at the practices they are using to preserve value. (PDF–1.15 MB)more

report | McKinsey Working Papers on Risk, No. 30

New credit-risk models for the unbanked

Lending to lower-income customers is challenging for both traditional consumer finance and microfinance. A third way is emerging, based on increased computing power and new sources of data. (PDF–784 KB)more

report | McKinsey Working Papers on Risk, No. 29

Day of reckoning?: New regulation and its impact on capital-markets businesses

New regulation will dramatically lower returns in capital markets businesses. Banks can take some steps to ameliorate the effects, but the long-term health of these businesses is in question. (PDF–1 MB)more

report | McKinsey Working Papers on Risk, No. 28

Strengthening risk management in the US public sector

As it seeks to protect the public, government takes on many of the biggest risks around. But the challenges of managing risk from the public sector are substantial. Government agencies can take five steps to improve their risk management practices. (PDF–700 KB) more

report | McKinsey Working Papers on Risk, No. 27

Mastering ICAAP: Achieving excellence in the new world of scarce capital

In the wake of the crisis regulators have put most of their energies into Pillar 1 reform. Now they are turning to Pillar 2 and the Internal Capital Adequacy Assessment Process (ICAAP) to rein in other risks and to accelerate the work on Pillar 1. Banks must rapidly develop a playbook of ICAAP strategy if they are to get out in front of this new regulatory trend. (PDF–1.1 MB) more

report | McKinsey Working Papers on Risk, No. 26

Basel III and European banking: Its impact, how banks might respond, and the challenges of implementation

Basel III will have significant impact on the European banking sector. We estimate that by 2019 the industry will need about €1.1 trillion of additional Tier 1 capital, €1.3 trillion of short-term liquidity, and about €2.3 trillion of long-term funding, absent any mitigating actions. The impact on the smaller US banking sector will be similar, though the drivers of impact vary. (PDF–594 KB) more

report | McKinsey Working Papers on Risk, No. 25

Assessing and addressing the implications of new financial regulations for the US banking industry

According to the Financial Services Roundtable, the 2,300-page Dodd-Frank Act mandates more than 200 new regulations and 67 studies and reports to be conducted by regulators over the next two years. The resulting legislation could translate into an estimated 15,000 to 20,000 pages of new rules and and compliance requirements for financial instututions (PDF–684 KB). more

report | McKinsey Working Papers on Risk, No. 24

The use of economic capital in performance management for banks

Amid heightened concern about the future of regulatory-capital requirements, economic-capital modeling is enjoying a renaissance in the post-crisis banking world. At its best, economic capital can improve banks’ capital allocation, business-performance tracking, and risk management. (PDF–404 KB)more

report | McKinsey Working Papers on Risk, No. 23

Getting risk ownership right

In the new risk paradigm, an organization will take on only those risks for which it has three core lines of defense—a resilient and flexible business model, well-developed risk skills and capabilities, and sufficient financial strength to absorb risk if it should materialize. (PDF–460 KB)more

report | McKinsey Working Papers on Risk, No. 22

Top-down ERM: A pragmatic approach to managing risk from the C-suite

An ERM system that quickly enables risk thinking in the C-suite should focus on the "top-down" elements of risk management in conjunction with the more usual "bottom-up" ones. (PDF–504 KB)more

report | McKinsey Working Papers on Risk, No. 21

Credit underwriting after the crisis

This document outlines the key structural trends that are reshaping banks' credit underwriting processes and discusses practical measures banks should take to extract significantly higher value from lending operations. (PDF–784 KB) more

report | McKinsey Working Papers on Risk, No. 20

Getting to grips with counterparty risk

Counterparty risk stalks the financial system. In this 16-page client-ready article, the authors outline a four-step approach to help banks and other financial institutions manage and mitigate this pervasive risk. (PDF–472 KB) more

report | McKinsey Working Papers on Risk, No. 19

Variable annuities in Europe after the crisis: Blockbuster or niche product?

This article examines the potential of variable annuities to become a blockbuster product after the crisis, and considers the strategic choices and operational challenges life insurers face in offering them. (PDF–575 KB) more

report | McKinsey Working Papers on Risk, No. 18

A board perspective on enterprise risk management

Boards play a crucial role in risk oversight. This article outline twelve specific actions corporate directors should take to ensure their company's ERM capabilities are at the level of best practice. (PDF–871 KB) more

report | McKinsey Working Papers on Risk, No. 17

After black swans and red ink: How institutional investors can rethink risk management

This article outlines how institutional investors in particular can improve their risk management practices along five dimensions: risk transparency and insight, risk appetite and strategy, risk-related processes, risk organization and governance, and risk culture. (PDF–2.23 MB) more

report | McKinsey Working Papers on Risk, No. 16

Taking control of organizational risk culture

This paper offers a methodical definition of risk culture and puts forward a model for how organizations can assess their risk culture, and then intervene in areas where this culture might be vulnerable. It also provides real case examples of the application of this approach. (PDF–388 KB) more

report | McKinsey Working Papers on Risk, No. 15

Capital ratios and financial distress: Lessons from the crisis

Global regulators are in the process of imposing new capital requirements intended to result in both higher and better quality capital. We analyze what indicators would have been good predictors of distress for banks during the crisis. (PDF–340 KB) more

report | McKinsey Working Papers on Risk, No. 14

The National Credit Bureau: A key enabler of financial infrastructure and lending in developing economies

The challenges of lending in developing economies are unique. Establishing a credit bureau from scratch in an emerging market is a multi-year program requiring a phased approach to accomplish a vision involving a number of banks and services. (PDF–529 KB) more

report | McKinsey Working Papers on Risk, No. 13

Risk modeling in a new paradigm: developing new insight and foresight on structural risk

Why did sophisticated risk management tools fail to predict the 2008 crisis? Many have argued this question at length, and one important conclusion is disturbingly simple: managers relied too heavily on short-sighted models and too lightly on their own expertise and insight. (PDF–568 KB) more

report | McKinsey Working Papers on Risk, No. 12

Bad banks: Finding the right exit from the financial crisis

This working paper explains the different options available to banks and governments considering using a 'bad bank' mechanism to contain bad assets. It sets out the main factors to be considered and assesses the different strategies undertaken by various governments. (PDF–3.20 MB) more

report | McKinsey Working Papers on Risk, No. 11

Best practices for estimating credit economic capital

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 array of techniques and approaches depending on their business mix. (PDF–185 KB) more

report | McKinsey Working Papers on Risk, No. 10

Responding to the variable annuity crisis

This paper examines the crisis faced by the U.S. insurance sector as the consequences of the huge growth in variable annuities hit home. It describes the crisis and suggests strategies for short- and medium-term survival. (PDF–702 KB) more

report | Harvard Business Review

Option games: The key to competing in capital-intensive industries

Nelson Ferreira, Jayanti Kar, and Lenos Trigeorgis

(PDF–1.09 MB) more

report | McKinsey Working Papers on Risk, No. 9

Upgrading your risk assessment for uncertain times

In conditions of high uncertainty many companies are asking increasingly demanding questions about risk assessment. This paper considers what can be learned from approaches that have worked well and lays out six imperatives for effective risk assessment throughout economic cycles. (PDF–770 KB) more

report | McKinsey Working Papers on Risk, No. 8

Shaping strategy in an uncertain macro-economic environment

This working paper sets out an approach for strategists to stress-test their corporate strategy for macroeconomic uncertainty, and to develop a "through-cycle" view to ensure their company both survives the present slowdown and comes out stronger. (PDF–226 KB) more

Report | McKinsey Working Papers on Risk, No. 7

"Option games": Filling the hole in the valuation toolkit for strategic investment

The paper describes how strategic decisions can benefit from analysis using techniques drawn from both real options and game theory. It explains the trade-off between flexibility and strategic commitment and offers a toolkit for making choices in competitive markets. (PDF–297 KB) more

report | McKinsey Working Papers on Risk, No. 6

Probabilistic modeling as an exploratory decision-making tool

This working paper highlights how probabilistic modeling can fail when used in the wrong way. It explains two different relevant definitions of the term probability, discusses some fundamental problems in dealing with uncertainty, and gives concrete examples how probabilistic modeling can be used well. (PDF–455 KB) more

report | McKinsey Working Papers on Risk, No. 5

Turning risk management into a true competitive advantage: Lessons from the recent crisis

While there are important lessons to be learned from the recent turmoil in credit and liquidity, the core message of this paper is that banks also have an opportunity to turn good risk management into a true competitive advantage. (PDF–742 KB) more

report | McKinsey Working Papers on Risk, No. 4

Liquidity: Managing an undervalued resource in banking after the crisis of 2007-2008

This paper examines liquidity management in banks in the context of the credit and liquidity crisis that began in 2007. (PDF–232 KB) more

report | McKinsey Working Papers on Risk, No. 3

Incorporating risk and flexibility in manufacturing footprint decisions

This working paper illustrates some of the pitfalls companies have encountered in optimizing manufacturing footprint, and it outlines a more holistic approach that includes systematically identifying key uncertainties and flexibility factors and quantifying their impact. (PDF–276 KB) more

report | McKinsey Working Papers on Risk, No. 2

Making risk management a value-adding function in the boardroom

This working paper addresses the role of the Board in understanding enterprise risk management (ERM) and governance. (PDF–393 KB) more

report | McKinsey Working Papers on Risk, No. 1

The risk revolution

This paper discusses the historical emergence of risk management, reviewing a number of key developments and their impact on the financial sector; it draws on examples from the energy industry to illustrate the way in which risk management can transform the fortunes of nonfinancial companies. Finally, the paper sets out a comprehensive framework that companies can use to develop a disciplined, strategic integrated risk-return management process. (PDF–2.65 MB) more

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Risk working papers and other publications

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