All books

Professional

Apps About Coach Log in Start reading

Quantitative Finance · Glossary

What is Escalation procedure, risk exception?

Also known as: escalation procedure · risk exception

Definition 12.4 The Desk and the Firm · Chapter 12 — The Risk-Management Function

An escalation procedure states, for each severity of limit breach or control failure, who must be told, within what time, who may approve a temporary increase or other exception, and what must be done if no approval is given. A risk exception is a documented, approved and time-limited departure from a limit or policy, with an owner and an expiry date.

The firm-wide risk appetite limit in the Lehman examiner’s report: $2.3 billion, raised to $3.3 billion for fiscal 2007, to $3.5 billion on 7 September 2007 (the firm was over the new limit on every business day of September but one) and to $4.0 billion by an approval of 14 January 2008 backdated to 3 December 2007; the examiner’s advisers put the 2008 limit on the previous year’s method at about $2.5 billion. Source: the chapter’s ledger.
Figure 12.2. The firm-wide risk appetite limit in the Lehman examiner’s report: $2.3 billion, raised to $3.3 billion for fiscal 2007, to $3.5 billion on 7 September 2007 (the firm was over the new limit on every business day of September but one) and to $4.0 billion by an approval of 14 January 2008 backdated to 3 December 2007; the examiner’s advisers put the 2008 limit on the previous year’s method at about $2.5 billion. Source: the chapter’s ledger.
Read in context →

Related terms