Three ways global banks are strengthening risk governance processes

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Initiatives are underway to achieve more comprehensive, integrated strategies for risk management. Reporting, forecasting and technology have been the primary target areas for improvement, and banks put in place the systems and people required for thorough, proactive approaches to managing and mitigating risk. Many are well along the path to building strong risk governance teams and processes. Below are three ways they’re making improvements.

Strengthening risk governance, systems and processes

  1. Upgrading report analysis and delivery: risk reporting is becoming more comprehensive, actionable and timely
    Senior management, boards and other stakeholders are beginning to receive management reports that deliver real, actionable value – a clear shift from the “data dump” mode that often characterized risk reporting in the past. Once reports are upgraded to span a comprehensive set of information from across the organization, teams are turning their attention to delivering the information more quickly. Executives said that accelerating the reporting process to support real-time decision-making is one of their biggest challenges.

    Many banks caution that aggregating risk is only the first hurdle, saying the more difficult step is reviewing, analyzing and synthesizing risk reports to understand the interrelationships across the organization.

  2. Upgrading and reinforcing forecasting: improving systems and methods
    Banks need more sophisticated predictive tools that will enable management to assess the implications of market events on and across categories of risk. Respondents reported some critical changes to their forecasting processes. More than 70% have adjusted their models to rely less on historical data and assumptions. Seventy-four percent have incorporated forward-looking scenario planning and stress testing that considers outcomes with extremely low probability but potentially high impact. But executives cautioned that forecasting models can get out of hand, becoming overly complex and too difficult for senior management to understand and use effectively as decision-making tools. Many emphasized that analysis must always be paired with seasoned business judgment, cautioning that “you need to be very careful not to fall in love with your models.”

  3. Streamlining technology to support efficiencies
    Leveraging technology to support risk management more effectively remains a work in progress for most banks. While executives seem to have a clear vision of how technology can be deployed to better support risk management, they reported ongoing challenges in implementing effective technology platforms.

    Given the high costs involved, companies are approaching the IT challenge from several perspectives. Some have developed prototypes and are in the testing stage, others are organizing IT projects around specific systems or addressing system issues within business-units, and a small number have committed to major system overhauls, such as rebuilding the global market risk infrastructure.
Next: The rising cost of risk: what’s on the horizon?


Read the full 2010 annual global bank risk survey report for complete findings.