Management Action is a term used frequently in the context of Scenario Analysis to denote the flexibility available to an organization's management to affect how a future scenario unfolds by exercising any discretions it has at its disposal.
Management actions differ significantly by business line and the core risk being managed. They also range in severity and impact
- In Market Risk context management action may include closing positions, hedging or other de-risking measures
- In Credit Risk context management action may include changing origination criteria, credit insurance, disposals etc.
Issues and Challenges
- Incorporation of management action into scenario analysis, while arguably realistic, introduces further uncertainty and subjectivity e.g. around the ability and effectiveness