Bank failures, jitters shine spotlight on Risk
By Frank Cummings, CEO
Considering that “jeopardy” is a worry word with some banks lately, are you up for a little Jeopardy-style trivia?
Here’s today’s Jeopardy answer in the Banking and Finance Category: A career title that requires effort that is “laborious, technical, and involves poking at business plans to look for potential trouble spots.”
The Jeopardy answer-as-a-question: What are Chief Risk Officers?
If you’re reading this, you probably answered correctly. Those of us in Compliance and Risk Management deal daily with tackling challenges that colleagues see as intrusive, overly risk-averse, and harmful to revenue opportunities.
But in the avalanche of handwringing about the health of banks in the U.S. and beyond, the roles of Chief Risk Officer and Chief Compliance Officer deserve attention. And these challenging roles deserve deep appreciation when done well.
Toxic Tone from the Top Sabotages Risk Management
Publications have reported extensively on the failures of Risk Management in the FTX debacle and the recent failures like Silicon Valley Bank and Signature Bank. While those examples represent the extremes of poor Risk Management, pushback against Risk Management and Compliance measures tends to be a common part of the work for many in the field.
The Wall Street Journal yesterday reported at length about the common tensions experienced by many Chief Officers of Risk and Compliance.
In institutions with strong healthy cultures of Risk Management, the work remains difficult but doable. But in some institutions—like the recently failed ones—Risk Management gets de-emphasized and circumvented to the point that it is unrecognizable and virtually non-existent.
A sign of problems, according to the WSJ report, includes board-level Risk committees that lack clout and authority to push back against obviously risky practices. Another dangerous strategy to neutralize Risk committees lies in populating them with people with little or no expertise in Risk Management.
Federal law requires that banks with $50 billion or more in assets must have a board-level Risk committee. But the law only requires that a single member of the committee have experience in Risk Management for large institutions.
Top Leadership Determines Culture of Risk Management
The WSJ report describes the backgrounds of Silicon Valley Bank’s Risk committee, for example. Most members’ resumes offered little in terms of experience in Risk Management for financial institutions. And the position of Chief Risk Officer was vacant at SVB for nearly eight months prior to the meltdown.
As Risk and Compliance experts know well, even the best policies for Risk Management mean little without a healthy tone from the top. When leaders support Risk Management and require the same from their various departments, good results will follow. Institutions can maximize revenue in the context of their carefully considered appetite for Risk.
RegTech Solutions Can Now Transform Cost, Results of Risk Management
And tech innovation now supports successful Risk Management. In the recent past, Compliance and Risk technologies remained grounded in legacy systems and had too many gaps to deliver even average results. But today’s leading RegTech solutions provide tremendous support to Chief Risk Officers and Chief Compliance Officers.
With Risk and Compliance experts supported by exceptional RegTech solutions, Risk Management can achieve peak effectiveness—and efficiency. Truly, in this day and age, the only stumbling block in today’s institutions is whether leadership embraces and supports a healthy culture of smart Risk Management.
