Final answer:
The rise of Enterprise Risk Management was principally due to the increase in complexity in banking and financial systems, exacerbated by the global financial crisis and subsequent Great Recession, which highlighted the deficiencies in the understanding and management of various financial risks.
Step-by-step explanation:
The rise of Enterprise Risk Management (ERM) is largely attributed to the increase in complexity in banking and financial systems. While specific regulations such as Gramm Leach Bliley (GLBA), Dodd-Frank Act, and Basel II have influenced the financial industry, it is the overarching complexities and the need to address multifaceted risks that have accelerated the adoption of ERM.
The Great Recession, which unfolded from late 2007 into a global financial crisis, underscored the need for comprehensive risk management practices. Key components of the crisis included the creation and failure of unregulated financial assets like collateralized mortgage obligations (CMOs) and credit default swaps (CDSs), both of which contributed significantly to the financial turmoil. Private credit rating agencies had given many of these risky assets high safety ratings, which later proved to be misleading, exacerbating the crisis and resulting in the failures of major institutions like Lehman Brothers and the nationalization of entities such as Fannie Mae.
Consequently, legislative responses like the Dodd-Frank Act sought to rectify some of these issues and reform the financial system. Although Dodd-Frank played a role in reforming the financial system and thus indirectly influencing the rise of ERM, it is primarily the increasing complexity of the banking sector that has necessitated a more strategic approach to managing risks across an entire organization.