The main lesson that compliance officers and risk managers must take from the credit crisis is to rely less on value at risk models in conducting their business, according to George Cooper, fund manager at Alignment Investors. Cooper was until recently head of interest rate research at JPMorgan in London.
"This is because VaR relies on efficient market theory, which does not work," Cooper said. On a macro level, central banks have failed to manage monetary policy because they have been run on same broad theory, he said, drawing on his new book, "The Origin of Financial Crises".
"The worst mistake of central banks has been an asymmetric attitude to monetary policy," he said. "They have stimulated the economy aggressively in a modest downturn, but have shown reluctance to rein in the bubbles."