The ERM Current™

The results from a recent survey of financial institutions from across the globe indicate a urgent need to automate financial processes and integrate risk management efforts across the organization.  The survey was conducted by the Economist Intelligence Unit in the fourth quarter of 2008 during the height of the credit crisis.  Here is an excerpt from the report’s conclusion.

The ravages of the credit crisis have raised serious doubts about banks’ ability to effectively manage risk. Bankers now face arduous challenges as they attempt to restore the confidence of regulators, analysts, shareholders and customers. To the extent that senior managers have focused more heavily on governance, risk and compliance over the last five years, they may be tempted to despair about the possibility of anticipating potentially devastating risk exposures. However, a sober appraisal of banks’ efforts will reveal that cost considerations have limited the extent to which manual processes have been eliminated and, far more importantly, that sophisticated GRC isolated within lines of business or internal control functions is no substitute for an integrated, enterprise-wide approach to risk management.

Wheelhouse Advisors is uniquely equipped to help companies implement an integrated, enterprise-wide approach to risk management.  Visit www.WheelhouseAdvisors.com to learn more.

Last week, the Governor of the Bank of England, Mr. Mervyn King, delivered a speech to a group of international bankers about how we can emerge from the current economic crisis successfully.  In his view, regulatory reform should be both “simple and robust” to be effective.  Here’s a brief excerpt from his speech.

A lesson of history is that few generations have been able to avoid a repetition of earlier banking crises. The essential problem is that we can no more bind our successors than our predecessors were able to bind us. Rare events, even when dramatic at the time, lose their power to shape policy as memory recedes. The role of institutions is to retain a collective memory and to resist the temptations of the present. That is one of the most important roles of a central bank. It is accepted as such in the domain of monetary policy. And there is an equivalent role in financial stability.

The introduction of simple and robust policy tools into a regulatory regime based on the exercise of constrained discretion would make it easier to resist overly rapid expansion of financial institutions. In particular, the authorities should maintain a clear focus on the issues that matter when the worst occurs – liquidity and leverage. It should be intrusive, in the sense of knowing what is going on, but not bureaucratic. A system in which it is easier for a large bank to expand and then destroy its balance sheet than for an individual to open a bank account has lost focus. That is not the fault of regulators, but a reflection of the pressures and incentives they have faced – from all of us.

The same can be said for a company’s enterprise risk management program – a simple, yet robust approach is required to be both successful and sustainable.  Wheelhouse Advisors can help you build an effective ERM program to meet these objectives.  Visit www.WheelhouseAdvisors.com to learn more.

As the plans for regulatory reform in the financial sector evolve, one thing is certain – it will be a work in progress for some time to come.  The companies that are well prepared and nimble in addressing the regulatory demands will certainly have a competitive advantage over others.  Here is what an article in Bank Systems & Technology magazine had to offer in light of the upcoming changes.

Predicting precisely how a new administration and Congress will address the financial crisis is difficult over the long term, but the early returns are instructive. Banks that participate in TARP will be subject to a range of new reporting requirements that go above and beyond the existing regulatory requirements—combining the needs of the SEC, the Federal Reserve, and the Office of the Comptroller of the Currency. But with new regulations and uncertainty come added burdens, and building a competitive advantage will require having insight into the infrastructure (systems and data) required to get ahead of regulatory pressures and minimize the millions of dollars required for compliance through careful planning and investment—rather than issuing knee-jerk responses to each new change in regulations.

U.S. banks can borrow from the lessons of others. European banks have been managing a more active regulatory environment for some time, and have successfully used SWAT-team-like functions to meet this challenge. For instance, Barclays PLC created a nimble central organization to actively manage new regulations and to act as the single point of contact between all business units and critical group functions. However, it first needed the technology infrastructure in place to meet these goals.

Wheelhouse Advisors is uniquely equipped to help companies build the infrastructure needed to address regulatory demands in a cost-effective and practical manner.  Visit www.WheelhouseAdvisors.com to learn more.  

According to a recent survey commissioned by Ernst & Young,  the vast majority of major financial institutions lack a consolidated view of risk across their organizations.  Only 14% of the 40 global banks surveyed indicated that they have a solid enterprise risk management program.  Given the current crisis and admission that risk controls are lacking, the majority of the respondents also indicated a need for increased investment in this area (see graphic below).  Some of the other findings of the study included the following.

Organizational silos, decentralization of resources and decision-making, inadequate forecasting, and lack of transparent reporting were cited as major barriers to effective enterprise-wide risk management. The need to create a risk-aware culture throughout the institution emerged as a top priority in the study — three-quarters of all respondents cited its vital importance — as banks struggle to develop a consolidated view of risk across business units and various risk dimensions.

The need for effective enterprise risk management programs is certainly clear not only for financial services companies, but also for non-financial services companies.  How effective is your company’s risk management program?  For a no-cost, diagnostic review of your program, contact Wheelhouse Advisors today.