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Risk (in a wide sense) has become the main concern of most banks, asset managers and final clients. Financial Risk Management deals the various and complementary aspects of banking risk. Students have to acquire a wide culture of financial risk : typology of the different risks a financial institution faces, regulatory constraints, place of risk control departments and their relations with business lines, main models and risk indicators, implementation and estimation issues etc. Thus, they will be able to detect risk buckets (those that could generate significant losses to their future employers), whatever the job positions they will choose. The European banking activity depends on two sets of rules: Basel 2, that defines the need for regulatory capital, and the IFRS accounting norms (International Financial Reporting Standards). Both are significantly more complex than the former rules. In particular, they are based on mathematical models that have been proposed in the financial sector during the last twenty years: Value-at-Risk, its application to credit portfolio modeling and operational risks, the valuation of structured products, etc. Due to this sophistication, Risk Control and Financial departments, auditors, supervisors etc have to rely on some high-level ' quant ' teams to understand and apply these rules conveniently. Now, the latter rules are so important that no board of a bank will take an important decision without evaluating its consequences in accounting and regulatory terms. In parallel, the financial innovation has been fuelled by balance-sheet management and regulatory arbitrage. Finally, the accounting and regulatory rules are keys to understand the recent financial crisis and its implications. Risk Managers must obviously be familiar with the most advanced tools of quantitative finance. They also need a large financial culture including financial analysis, Corporate Finance, as well as an excellent understanding of the macroeconomic and microeconomic environment of finance (financial markets, microeconomics of risk, financial macroeconomics, monetary policy, financial regulation...). Risk managers have to assess to which extent a bank will face three kinds of risks: market risk, credit risk and operational risk. Managers have to deal with regulation constraints and be competent in risk modelling. For all types of loans (consumer loans, mortgages, revolving credit, bank account overdrafts, SME loans, corporate bonds and their derivatives...), the Risk Manager must be able to evaluate the risk and thus deduce the reserve amounts. In banks and insurance companies, assets and liabilities managers measure rate risks and liquid assets statements. They control assets and liabilities accounting, analyse the firm’s involvements and carry out surveys in order to help set up general financial strategies. A bank's asset liability management seeks to measure and hedge interest rate and balance sheet liquidity risk, and particularly the risks generated by the bank's commercial transactions (loans, credit lines, client deposits, savings accounts). As these transactions are not generally within a financial market (in which they could be returned), the question of interest rate risk hedging does not arise in the same terms as for bonds and negotiable securities in the markets. For this reason, and for other accounting and regulatory reasons, balance sheet rate risk management has specific features and cannot be reduced to 'delta hedging' as taught in finance courses. In addition, as transactions with clients are involved, it is essential to be able to model the clients' behaviour, which ultimately means that ALM calls for a compound approach including interest rate models, statistical behavioural models and actuarial calculus. Portfolio managers work in all sectors of finance, banks, investment firms or insurance companies. They have to manage investors’ or firms’ portfolios, such as mutual funds or pension funds. Portfolio managers also have to find out the right stock combinations to maximise investors’ benefits, regarding a given risk level.
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