The beginning of the 21st century once again affirms the old adage made famous by President Ronald Reagan before the fall of the Berlin Wall: “Trust but Verify.” Financial and accounting scandals show that lenders and investors need tools to monitor past performance and anticipate future risks, such as earnings restatements, accounting problems and even defaults. The draconian legislation known-as Sarbanes-Oxley that passed the Congress in 2002 confirms the need for corporate officers and directors to use more rigorous tests to ensure acceptable standards of financial strength and corporate governance when initiating or monitoring commitments to and/or investments in both public and private companies.

Scandals like Worldcom and Enron have created a new generation of risk behavior measures that are beginning to arrive on the market. These measures emphasize the quantitative analysis of accounting aggressiveness, director and officer backgrounds, firm behavior regarding propensity to risk, potential exposure to investigations and lawsuits, and other analyses designed to identify the existence of potentially catastrophic risks.

The risk measures generated by these emerging providers of data are interesting, provocative and scattered. The state of the art can easily result in a company being ranked at both the top and bottom of different risk or corporate governance measures at the same time. Coverage remains spotty in the public sector and non-existent for most private firms.

But things are changing.

The mission of Institutional Risk Analytics is to design and build cost-effective and compliant tools that help our clients make better credit decisions and manage risk. We believe the financial community needs to take advantage emerging capabilities in transparency, comparability, throughput and data consistency to build better risk tools. We are prepared to implement solutions for our clients using a modular approach that changes as the technology to leverage automation matures.