Business Opinion:Risk control was all the talk last week as it emerged that lowly trader Jérôme Kelvier had managed to knock a €4.9 billion hole in the finances of his employer, France's venerable Société Générale (SocGen), writes  Dominic Coyle

It is still unclear when Kelvier turned into a rogue operator. What is known is that, until the start of this year, the positions he took on the future direction of European stock market indices had worked well enough to leave him in credit.

Even when his activity was uncovered, his losses totalled around €1.5 billion. It was his employers' bad luck to be stuck unravelling positions just as the market took fright at the start of last week bringing the final bill to a record €4.9 billion.

Still, for SocGen, and for banking in general, the problem is as much the "how" of the affair as the "how much".

The manner of Kelvier's rogue trading was not supposed to be possible in the aftermath of the Nick Leeson affair. Both men operated in similar fashion, utilising experience - and possibly leveraging friendships - from previous employment in their respective banks' back offices.

After Leeson collapsed Barings, we were told that risk control systems had been put in place to ensure such an event could not reoccur. SocGen has glossed over this issue, preferring instead to place total blame on the man referred to by Bank of France governor Christian Noyer as a "genius of fraud" and by senior colleagues as a "Walter Mitty".

That is not a sustainable position and it was notable in Davos this week that while European bankers confined themselves to expressions of shock and sympathy for the French bank, US bankers and regulators adopted a harsher tone. Even in France, there is a growing conviction that modern risk control systems cannot be undermined solely by one relatively junior trader in the manner described by SocGen executives.

But risk control systems, like risk assessment generally, are only as good as the people operating them. And the one thing we have learned in the past year about the banking sector globally is that they have been very poor judges of risk.

The scale of the Kerviel losses managed to avert attention entirely from writedowns of €2 billion also announced by SocGen related to the US sub-prime mortgage crisis.

More than the actions of the unfortunate Kerviel, the US debacle is testament to banks' inability to responsibly balance risk and reward. Reuters chairman Niall FitzGerald put it very well. Speaking in Davos, he accused the financial services sector of abusing the English language. "People started talking about sub-prime when it was, in fact, dredges," he said.

The low interest rate environment of the past decade has seen banks become ever more inventive in the pursuit of profit. When they ran out of capacity to lend by conventional yardsticks, they simply diced up their loan books - including the more dodgy loans - and flogged the whole lot off to investors who clearly should have taken a closer look at what they were buying.

Banks used securitisation to sidestep standard risk assessment. The loans would not stay on their books, so why worry?

The prime offenders, not surprisingly, have been in the United States but, lest we get too smug, we should remember that Europe is not without red faces.

Northern Rock was, of course, the prime example of just how drastically things can go wrong when you rely too heavily on arcane financial instruments. A number of other British banks were to the fore in designing the Structured Investment Vehicles that came dramatically - and for investors, expensively - unstuck during the autumn.

Germany too saw turmoil as some local landesbanken turned to increasingly sophisticated financial instruments abroad to boost profit amid tighter restrictions on what they were permitted to do in their domestic market.

And, in Ireland, we are currently being entertained by the mutual blame game as lenders battle over the assets of solicitor/developers Michael Lynn and Thomas Byrne.

Court affidavits in one of the Lynn cases allege that, so keen were certain banks to finance a property-related proposition, they did not even check whether the borrower had honoured undertakings under previous loans.

And all too often it is the customers or, as in the Northern Rock case the taxpayers, who pay the price for the failure to control risk.

Banks have been to the fore in pressing the case for lighter regulation. They have yet to show they can be trusted with it.