People may change jobs, develop expensive medical conditions, have children, and so on and so forth. People change; so does risk. So, how can lenders manage the risk that will develop in borrowers over time? That's what CRTs are for.
This discussion, however, got me thinking about risk from a leadership perspective. CRTs take into account not only current risk but also the risk likely to develop in the future, and so should leaders. When we make decisions – whether they be regarding human resources, technological investment, regulatory issues, or marketing campaigns – we need to think about the risk that is likely to develop later down the road. What is the economy going to be like ten years from now? How do we envision the risk we'll likely encounter in the future?
Risk isn't a stationary object – it's always changing. The greatest leaders among us have the vision to consider the risk that will likely occur in the future so that they can make better decisions in the present.
On the August 31 episode of the online radio show I host, we had the privilege of interviewing industry veteran Eileen O'Grady. During our conversation, Eileen discussed Credit Risk Transfer securities and made a very interesting point about their reason for existence. When borrowers first borrow, they have a certain level of risk. However, as time goes by, that level of risk changes.