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More Muscle for Risk Managers

Banks are rethinking a flawed system that failed to give internal watchdogs enough clout

Subprime losses hitting the painful $100 billion mark have focused Wall Street's best minds on the dangers of excess. The result is new thinking about the role of risk managers. Till now, most have been midlevel functionaries powerless to curb the reckless tendencies that got the Street into this mess.

At the biggest banks, change is under way. John Thain, the new CEO of Merrill Lynch (MER), has created two high-profile risk-management positions reporting directly to him. Morgan Stanley (MS) has created a new position of senior ris officer for sales and trading. Citigroup's (C) freshly minted CEO, Vikram Pandit, vows he'll be a "hands-on participant" in risk management. In the past, "banks have seen risk management as an industrial process where you have the machine, you have the data, and then you crank the handle," says Alan McIntyre, a managing director at consultant Oliver Wyman. (MMC) "There's been no judgment."