| The crisis in the subprime lending market served as a harsh reminder that financial risks (most noticeably credit and liquidity) bear systemic interdependencies globally. Growing complexity of financial instruments and markets, cross-border interdependencies, unforeseen scenarios, and uncertainty overwhelm legacy and siloed risk models. Polarization between healthy and strained institutions increases as complexity and volatility raise the bar for capital adequacy, liquidity and business balance, currently reflected in regulatory mandates such as Basel II and Sovency II. Banks, securities firms and insurance carriers must also manage nonfinancial risk types, such as brand damage, information security, continuity of business operations, disruption of the supply chain, and geopolitical unrest.
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