Question 27.1: Explain the difference between top-down and bottom-up approa...
Explain the difference between top-down and bottom-up approaches to risk management. Why are both necessary in ERM?
In top-down approaches, risk limits are set at the senior management or board level for the whole organization. In bottom-up approaches, risk limits are set for the different business units. Both approaches are necessary in ERM because it is necessary to ensure that risk limits for the business units, when aggregated, are consistent with the risk limit for the whole organization.
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