There were 88 banking crises over the last 40 years, according to the International Monetary Fund. Given this, the challenge of managing risk within the financial industry has proven to be a monumental task. 

So what can the financial services industry do to better monitor, manage and maintain the resilience of a financial system that is just now beginning to recover from its worst shock since the Great Depression? The World Economic Forum's latest report, "Rethinking Risk Management in Financial Services: Practices from Other Domains," aims to answer such a question. And it does so by analyzing the risk management strategies of seven unexpected domains well outside of the financial services sector: aviation, fisheries, immunology, infectious disease control, pharmaceuticals, telecommunications and wildfire fighting.

In looking at these diverse industries, the report makes nine proposals. By examining immunology, the WEF suggests that financial firms should "innovate transparently," meaning firms and regulators should be weary of rapidly "mutating" products and carefully monitor those instruments with the possibility of exceptional growth and variation. Looking at the aviation industry's constant efforts towards improving safety by gathering and analyzing data on all accidents and near misses, the WEF suggests those in financial services could do the same by identifying any indications of threats to the system, analyzing the information and acting accordingly. And by examining the World Health Organization and its approach to pandemic prediction, the Forum suggests that financial services could create similar early-warning tools and indicators, helping the industry become more proactive instead of reactive. 

"Drawing inspiration from unusual quarters, the report makes a compelling argument for finance to break from its somewhat insular approach to risk management," said Duncan Martin, partner and managing director at The Boston Consulting Group. Though the Forum states that its report is merely food for thought, it is obvious that the financial services industry could benefit from the ways in which other industries handle risk. Many hope that the report will, at the very least, initiate a constructive dialogue between those in the industry with the aim of making the financial services field as a whole more resilient and risk-aware.

The above article is reprinted from the July 2010 on-line edition of Risk Management Magazine.