Navigating the crisis: a survey of the world’s largest banks
The financial community is still reeling from the impact of recent events. Some of the banks we interviewed no longer exist. As one executive put it, “A year ago, no one would have believed that commercial paper would dry up. The whole idea of banks being taken over on a weekend – it was not imaginable.”
The unimaginable can and did happen. As we conducted our interviews from May through early October 2008, respondents’ attitudes shifted from analysis and detachment to amazement and disbelief at the speed with which the crisis progressed.
We’ve summarized some of the key findings of the survey below.
Top priority: creating a risk-aware culture: The survey revealed that the vast majority of banks lack a consolidated view of risk across their organization. With this weakness in risk management laid bare by the economic crisis, banks are being forced to improve their risk governance processes, increase the collaboration between risk and finance functions, and make instilling a risk culture a true priority.
Top six lessons learned by global banks
- Liquidity is king. Why the market seriously underestimated the paramount importance of liquidity.
- Risk must be embedded institutionally. How risk is now everyone’s business and that this shift in attitude will demand deep cultural change.
- Stay attuned to industry dynamics. Buoyant markets and complacency diverted attention from predictable cyclical corrections and their devastating impact.
- Don’t underestimate the “people factor.” Learn how the crisis highlighted the need for skilled people who can exercise seasoned judgment across functions and on the front lines.
- Prepare for the unexpected. Investment is needed in comprehensive predictive models and new approaches to scenario-planning and stress-testing.
- Avoid over-reliance on rating agencies. Respondents indicated that they can no longer afford to bypass their own independent analyses and unquestioningly accept the findings of third-party rating agencies.
Slideshow: Eight critical steps for holistic risk governance. Learn how banks are measuring up.
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Survey snapshot: Credit crunch heightens focus on risk convergence The credit crisis has driven many financial services executives to intensify their focus on risk convergence and risk management. In this survey, conducted in partnership with OpRisk & Compliance, we reveal how firms are adapting, and we lend perspective to the work that remains to be done.