Risk Management at Wellfleet Bank: Deciding about "Megadeals"
Inspired by one of the few banks that successfully weathered the 2007-2009 credit crisis, the case illustrates risk management in a corporate finance business. Chief executive Alastair Dowes has to decide if the risk governance process is adequate to uncover mega-risks in the portfolio, based on reflections on the risk assessment and sanctioning of two $1 bn credit proposals. Students will be invited to assess and review the risks in the two proposals, and to arrive at a decision (whether Wellfleet should accept them or not). At the same time, students will learn that gray-area risk decisions and, in particular, risk-adjusted performance measurement can rarely be automated. Risk governance requires executives to strike a balance between risk modeling and qualitative business judgment - a holistic (rather than silo-based) view of risks.