The Joint Forum released a paper today that assesses the progress made by financial conglomerates in identifying, measuring and managing risk concentrations.

The paper builds upon prior work conducted by the Joint Forum on risk integration and aggregation. In addition to assessing financial conglomerates’ progress, the paper also includes observations and lessons drawn from the market turmoil that began in mid-2007.

“This paper highlights critical issues in firms’ ability to identify risk concentrations and one of these relates to stress testing. Not only do firms need to factor liquidity risk into firm-wide, integrated stress tests but they also need to take into consideration second-order effects in the development of stress test scenarios,” said John Dugan, the chairman of the Joint Forum and Comptroller of the Currency in the United States.

“Looking forward, firms that employ such techniques in the identification of potential risk concentrations may find they are better prepared to deal with financial market disruptions such as those that have been experienced over the past year,” Dugan added.

The paper has also been included in the Joint Forum submissions to the Financial Stability Forum to contribute to its work related to the market turmoil.