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You Really Don’t Want to Manage Risk That Way
Charles Bronson made four “Death Wish” movies. Banks have apparently made another.
In what can only be described as disturbing, a new study has found that banks are treating risk management as an unwanted step child. You would think that financial institutions would have advanced their risk management functions since the credit crisis turning banking into a four-letter word. Alas, that is not the case:
The findings of the 2009 global investment management risk survey, the first initiative of the new SimCorp StrategyLab, show that the risk function has lost status and moved down in the line of reporting, despite the financial crisis. The survey, carried out in cooperation with The Nielsen Company, has revealed that since 2007 the number of organisations that have the risk management function reporting into the board of directors has dropped by 5% (from 36% to 31%) – a fall of 14% within that group. During this same period of time, the organisations that have moved the overall responsibility of risk to senior management level has increased by 5% (from 23% to 28%) – an increase of 22% within that group. This position is not expected to change.
When it came to looking into the future, however, the need for increased strategic influence of the risk function was cited as the most important factor to effect an improvement in risk management, as stated by 76% of interviewees. This implies a call from respondents for support from the most senior officers within the organisations.
Despite its loss of status, the role and responsibility of the risk function has been extended during 2008, as reported by 58% of the respondents. Key areas of future investment are expected to be in staff, staff competencies and the implementation of new models and methods.
Of serious concern is that, when asked: ‘Does your current risk function contribute to efficient use or allocation or capital and resources within the organisation?’, 14% of the respondents replied ‘Not at all’.
This is not the way to manage risk. There needs to be an about-face here, although I am not quite sure how this can take place outside of a government mandate. If the credit crisis didn’t spook financial firms into tighter risk management, I don’t know what will.
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