Managing Risks with the Fairest Value: How Different Market Concepts Are Used to Obtain What Is Wanted in Financial Risk Management of Banking and Insurance

European regulations of financial institutions like CRD IV and Solvency II have changed insurance and banking organizations with risk departments responsible for their implementation. Alongside and with these regulations come fair value practices that determine parts of the balance sheet of banks and insurance companies. Financial risk management in these organisations uses risk regulations and fair value practices to help the organization represent a good health. Organizational health can be represented through the balance sheet or quarterly reporting in the form of profitability, stability or adherence to regulation. There where theories exist of risk management as a form of control through calculation, this paper shows that risk management does not control financial practices, it cooperates with them. Concepts of markets are used to make sure that a bank or insurance company is shown in good health. Risk management has an active role here, using accepted concepts to make sure the representation remains compliant. With the help of participant observations of a market risk department of a European bank and of the life and financial risk management team at a large European insurance company, the paper shows that fair value representations can come from multiple market concepts. These are used such that the values respond to what is expected to be that value, within the boundaries given by regulators and accounting rules. Three different types of markets can be seen in practice. The first type is the transaction itself, secondly the market representation through aggregated transaction data and finally a market representation purely based on internal ideas of what it is supposed to look like.  All three are used alongside each other in risk management, depending on how the health of the organization is best represented. The fair values and related risk measurements are therefore not only a representation of a market concept but also of the internal questions of what the organization's right health representation is supposed to be.