Bank Credit Scoring

The concept of enterprise risk management (ERM) developed in the mid-1990s in industry, expressing a managerial focus. ERM is a systematic, integrated approach to managing all risks facing an organization.1 It has been encouraged by traumatic recent events such as 9/11/2001 and business scandals, including Enron and WorldCom. Consideration of risk has always been with business, manifesting itself in 17th-century coffee houses such as Lloyd’s of London spreading risk related to cargoes on the high seas. Businesses exist to cope with specific risks efficiently. Uncertainty creates opportunities for businesses to make profits. Outsourcing can offer many benefits, but also has a high level of inherent risk, and ERM seeks to provide means to recognize and mitigate risks. The field of insurance developed to cover a wide variety of risks, both external and internal, covering natural catastrophes, accidents, human error, and even fraud. Financial risk has been controlled through hedge funds and other tools over the years, often by investment banks. With time, it was realized that many risks could be prevented, or their impact reduced, through loss-prevention and control systems, leading to a broader view of risk management.