Mr González-Páramo stressed that the failure to assess properly the risks inherent in business models, in portfolios and in off-balance sheet activities has become evident. Consequently, a rebalancing of risk and return is required to ensure resilient institutions and a resilient financial system.
He argued that in order to achieve a resilient financial system, a strengthening of the risk control framework is needed so that financial institutions are ready to face the challenges that lie ahead. Such a framework needs to put risk management at the heart of the strategy and decision-making processes of each institution. The framework should be supported by the twin pillars of risk analysis, that is a suite of statistical risk models to provide a measure of the different risks faced by the institution and a comprehensive stress testing programme which consists of a more judgemental and coherent risk analysis based on scenarios that the institutions may be facing in the future.
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