Financial institutions are notorious for responding to market shocks in a herd. They are driven to this behaviour by complex but flawed risk-management models that assume little interaction between the individual institution and other players in the market. Yet in spite of this impulse to conformity, the risk-management performance of banks in this credit market turmoil is anything but herd-like. What is striking is the sheer variability of outcomes.

At one end of the spectrum Goldman Sachs sails sublimely on, churning out ever-improving earnings figures while offsetting losses on its exposure to the subprime market with vast profits on short positions in mortgages. At the other end, Merrill Lynch and Citigroup write off billions and shed their chief executive officers. How is this disparity to be explained?