Financial industry risk models fail, outsourcing regulation leads to global crisis.
Financial institutions relied heavily on computer-based risk models to regulate and manage financial risk, but these models failed during the global financial crisis. Regulators delegated too much responsibility to these models, leading to the crisis. Lessons learned include the need to scrap certain provisions allowing banks to set their own capital requirements, promote open source models in financial products, and recognize the advantages of equity securities in spreading risk.