Analyzing The Cause Of AIG Risk

With"Enterprise risk management-integrated framework"as the main theoretical tools,this paper analyzes the VaRious reasons of the AIG crisis.COSO defines enterprise risk management as:"Enterprise risk management is a process,affected by the enterprise's board of directors,management and other personnel.It was applied in strategy development,business departments and business activities.Also,it can be used to identify the potential events of the company and manage the risks in its risk preference range so as to provide reasonable assurance of the realization of business goals.American International Group("AIG"),was founded by Starr in Shanghai,China, in 1919.According to the 2008 Forbes Global 2000 list of large enterprises,AIG ranked eighteenth,and was the only financial enterprise among the U.S AAA Club's eight members.AIG's total assets were worth more than 1.2 trillion U.S.dollars at its golden age,with the highest market value of nearly 180 billion U.S.dollars.However, by the time of December 31,2008,AIG suffered a loss of 99.3 billion U.S.dollars. During the night of September 16,2008,AIG reached a saving agreement with the Federal Reserve,which meaned that Federal Reserve would provide 85 billion U.S. dollars of loans to AIG.Later,the Federal Reserve achieved another saving plan with tens of billions of dollars with AIG.Since AIG was taken over,there have been a large number of articles analyzing AIG crisis.Entirely according to"enterprise risk management - integrated framework"(ERM) for the first time,this article analyzes AIG crisis from the perspective of the eight elements.What's more,it is also the first time to use financial data to study the course of AIG crisis.This article is divided into five parts.The first part is introduction,which consists of this paper's background and starting point,analyzing structure and methods,and chapter arrangements.The second part involves risk management theory,financial derivatives,as well as the background of AIG crisis——sub-prime mortgage crisis. The third part introduces major lines of business which AIG is currently engaged in, and the four developing stages.The fourth part,from a view of financial data analyzing,interprets the entire logical chain of the AIG crisis,analyzes the items which caused the substantial loss of their book in detail and then observes AIG's radical risk management flaws from the data.The fifth part,according to the eight elements of"enterprise risk management-integrated framework",analyzes the underlying cause of AIG crisis.Also,it selects some elements,contrasting and analyzing their risk management in Goldman Sachs,Morgan Chase and AIG,so as to get some lessons of AIG's risk management absence.