Chapter 17 - From the Bane of the Revenue Model to a Competitive Advantage

Abstract

Financial institutions have large exposure from tail risk. It is an inherent part of their revenue models. Over the years, it has increased significantly. Effective sustainability management can help an institution tame the impact of exposure from extreme tail risk in a crisis. More importantly, it can lead to significant advantages. By specifically addressing tail risk from unquantifiable uncertainty, it contributes greater confidence to risk management, which deals with risk from quantifiable uncertainty and drives the revenue engine. Effective sustainability management translates into readiness in crises not only to maintain the going concern but also to proactively capture marketplace opportunities. By aligning regulatory and institutional interests, it also reduces regulatory risk. By enhancing quality of earnings and proactive communication with the marketplace, it also reduces investor anxiety, which adds shareholder value.