1. Professor Philip Linsley The University of York
A short history of risk
Professor Philip Linsley
The University of York

2. A discussion of the history of risk over time
From a company perspective
From the perspective of society

3. Is risk important?

4. Is risk important? Examples: Hospitals - patient safety
Engineers – bridges, buildings, transport

5. In finance? Examples of losses made by individual bank traders
Nick Leeson (Barings Bank 1995) $2bn
Jerome Kerviel (Societe Generale 2008) $7bn
Howie Hubler (Morgan Stanley) $9bn

6. Banks at the forefront of risk management practices
Bank risk
Market risk
Risk of adverse price movements
Credit risk
Risk of loan not being repaid
……….

7. The rise of a risk management industry since 1980s
Consulting
Professional
risk management
organizations
Changes in language

8. 700 years ago
Risks were considered unpredictable hazards or natural disasters
Caused by god or demons
Incalculable
For example, floods, earthquakes …..

9. From God to measurement
Cardani (1663) provides first systematic treatment of probability
Leads to the development of statistics
Leads (eventually) to insurance (fire, life, property, ….)

10. Companies and risk
1950s to 1980s
Insurance
Controlling risk

11. Remember: MARKET RISK Risk of adverse price movements
A trader buys something at a price of €100 but they do not know if they will sell it at a higher or lower price
For example, banks might trade currencies

12. Companies and risk Late 1980s and early 1990s
VaR (value at risk) developed by J P Morgan
“Our bank is 99% certain that we will
lose no more than $20m on our portfolio
over the next 10 days”
Risk has a positive side
Risk appetite

13. Companies and risk Mid to late 1990s
ERM (Enterprise wide risk management)
Nick Leeson and Barings Bank 1995
Operational risk
“the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events”

14. Companies and risk Early 2000s Risk and financial reporting
Enron bankruptcy 2001
Parmalat 2003
Sarbanes-Oxley Act 2002
Non-financial companies appoint Risk Officers
Risk governance

15. Companies and risk Mid 2000s to present Global financial crisis
Cost $10 trillion?
Behaviours and calls for change in culture
Risk culture

16. But what about wider society?

17. World Economic Forum

18. Chernobyl – Ukraine –1986 Nuclear reactor overheats
100x more radiation than Hiroshima and Nagasaki bombs

19. Industrial society Risks transparent (see, touch, smell, taste)
Risks become calculable
Risks can be ‘managed’
through insurance
Risks are limited to particular regions and limited in time too

20. Now = Risk Society (Ulrich Beck, 1986)
Risks differ greatly:
Environment, pollution, radioactivity, food, chemicals ….
‘Manufactured’ risks
Risks cannot be limited:
Space
Time
Socially
Scale of risks is like never before:
Hard to quantify
Hard to prevent
Hard to avoid
For example, Chernobyl

21. Some important approaches to risk
Based upon work by:
Risk Society
Ulrich Beck
Cultural theory of risk
Mary Douglas
Governmentality
Michel Foucault
Psychometric
Paul Slovic
Risk is complex and any history of risk is only partial