The Doom Loop in the Financial Sector: And Other Black Holes of Risk

Appendix 2 A Basic Integrated Risk Management Frameworks

145 I developed this schematic during the period 2007–09, in conjunction with a project of the McLaughlin Centre at the University of Ottawa, supported by funds provided by PrioNet Canada (see Leiss et al., forthcoming, where there is an expanded version of this schematic). Appendix 2 Integrated Risk Management Frameworks PrioNet: McLaughlin Centre Project, Integrated Risk Management Framework: Components (W. Leiss: January 2007) Page 1 RISK ASSESSMENT RISK MANAGEMENT Step 1: Ongoing Surveillance Step 2: Policy and Governance Context Step 3: “Trigger” (High Priority) Step 4: Risk Dimensions Analysis Step 5: Impacts Estimation Step 6: Formal Risk Estimation Step 7: Risk Control Options Analysis Step 8: Formal Stakeholder Consultation Step 9: Risk Management Decision Step 10: Implementation Sequence Step 11: Monitoring and Compliance Step 12: Evaluation, Review & Adjustment 146| Th e Doom Loop in the Financial Sector Table 2-1: Dimensions of Risk Management Major Risks* Dimensions Avian Influenza Pandemic (threatened) Prion Diseases Epidemic (1986 onwards) Global Climate Change (ongoing) Global Financial Risk (ongoing) Hazards Virus of great Lethality (~60% Mortality) Inevitably fatal Neurological Disease Human-caused Greenhouse Gas (GHG) Emissions Sudden cascading Insolvency (firms); Severe Recession Or Depression Risk Factors Avian/human Contact; Global movement Of people; Genomic Re-assortments Environmental Transmission; Rendering; Global trade in Live animals & Beef Climate Forcing Through GHG Concentrations; Irreversibility; Tipping points; Lag effects Interconnections; Asset correlation; Novel instruments; Transparency; Leverage; “Shadow” sectors Exposures All of human Population if Human-human Transmission Widespread in Cattle, cervids, Humans (beef); To varying degree, All human and Animal Populations 2007-2008: Advanced Economies, some Spillover to others Integrated Risk Management Frameworks| 147 Estimation of Likelihood (Probability of Occurrence) Now low, but would change if viral genome mutates Epidemics seen In Animal Populations, Not in humans Very high Probability (>90%) with High confidence Not Measured (no Estimation of Magnitude) Estimation of Consequences If human-human Occurs, then large Death toll & Economic losses Mass slaughter Of animals; Economic loss In beef exports If no mitigation, Possible collapse of Economies, large Population shifts Estimated as Catastrophic only Rarely, otherwise Not Measured Level of Severity (P x C) Very low at Present, very Severe if key Mutation occurs Very severe for Certain nations (UK, Canada, Others) By around 2100, Increasingly very Severe and maybe Irreversible In retrospect, Extreme; but no Estimate for Future risk Risk Mitigation Options (examples) Surveillance; Good reporting; Advance planning; Quick vaccine Surveillance; Reporting; Culling; End recycling In animal feed Drastic lowering of GHG emissions; Adaptation; Geo-engineering Of Climate Regulation of Derivatives; Control leverage; Insurance fund; Control bank size * Avian Influenza Pandemic: H5N1 (WHO 2010) Prion Diseases: Cattle (BSE, Bovine Spongiform Encephalopathy); Cervids, i. e., deer, elk, moose (CWD, Chronic Wasting Disease); other animals; humans (CJD, Creutzfeldt-Jakob Disease, and variant CJD caused by consumption of infected beef) (Leiss et al. 2009) ...