What has primarily contributed to the rise of Enterprise Risk Management?

The rise of Enterprise Risk Management (ERM) is primarily attributed to the increase in complexity in banking. As the financial landscape has evolved, the interconnectedness of financial markets and institutions has grown, leading to a more intricate risk environment. This complexity has necessitated a more comprehensive approach to risk management, enabling institutions to identify, assess, and mitigate a wide array of risks, not just in isolation but as part of an integrated framework.

Financial institutions are now required to manage various types of risks, including credit, market, operational, and reputational risks, all of which are influenced by external factors such as regulatory changes, technology advancements, and global economic dynamics. The traditional siloed approach to risk management proved insufficient for addressing these complexities, prompting the adoption of ERM frameworks that promote a more holistic view of risk across an organization's entire portfolio.

While legislative measures such as the Gramm-Leach-Bliley Act and the Dodd-Frank Act have impacted the regulatory environment of financial institutions, the root cause of the demand for sophisticated ERM practices stems more from the intrinsic complexities present in today's banking environment rather than solely from regulatory pressures. Similarly, Basel II introduced better capital adequacy and risk management practices but did not directly cause the rise of ERM as a concept