Financial Crisis: Where Did Risk Management Fail?

The real estate market bubble and the subprime mortgages have been often identified as the causes of the current financial crisis, but this is not entirely true or, at least, they cannot be considered as the main cause. A poor regulatory framework based on the belief that banks could be trusted to regulate themselves is among the main sources of the crisis. At the same time, risk management at most banking institutions has failed to enforce the basic rules for a safe business: i.e., avoid strong concentrations and minimize volatility of returns.