Gap analysis was driven by a top-down approach with significant board and senior management involvement

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In almost all cases, banks reported that CEOs and boards sponsored an exercise to assess the extent to which the recommended best practices are being met.

Many banks (in particular those most affected by losses) had not waited for “best practice” guidance to become publicly available before starting to review their processes, but even so, the recommendations had provided a comprehensive check list of areas to review. There was universal respect for the IIF recommendations, even though not all the guidance was appropriate for every bank sampled.

The majority of banks took a top-down, firm-wide approach to identifying the gaps. Sponsorship from the board and senior management was instrumental in driving the process forward to maintain momentum. It also meant that actions to deal with gaps took priority when resource decisions were made.

In many banks, the group risk function translating the guidelines into a set of requirements appropriate to the bank’s business. A typical approach was that, having prepared the list of requirements (normally in a spreadsheet), these were then distributed to the various business units for each unit to complete their own self assessment.

Progress on the gap analysis was driven forward by the chief risk officer (CRO), who was often expected to provide regular updates to the board on the progress of the analysis and, more latterly, the progress on closing the gaps identified. In some instances, the risk committee was involved to provide general oversight to the process.

In some cases, banks had set up small audit teams to review practices against all recommendations across all functions and business lines. Gaps were turned into comprehensive action plans with accountable owners and with access to the appropriate resources.

Four key themes
1. The focus is on governance and risk appetite

2. Gap analysis was driven by a top-down approach with significant board and senior management involvement.

3. Banks lack agreement on degree of change needed in response to the credit crisis

4. The time scales for dealing with gaps vary and there is significant competition for resources

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