Banks need more transparency, says IIF

An Institute of International Finance (IIF) report says the industry needs risk management reform and better market transparency

FRANKFURT – The Institute of International Finance (IIF), a global association of financial services institutions, has called for stronger risk management and an increase in transparency in the wake of the credit crisis.

Josef Ackermann, chairman of the IIF board of directors and of Deutsche Bank, said: “The leadership of our industry recognises its own responsibility to restore confidence in the financial markets, solve the problems that have arisen and prevent those problems from recurring in the future.”

Its interim report on best market practices also identified the need for better incentives and compensation, and the reform of asset valuations, liquidity management and the rating process. The crucial importance of the risk manager’s role was also highlighted. More broadly, increased board level involvement in risk management is encouraged, in order to create the necessary cultural shift towards better-used risk management.

Rick Waugh, president and chief executive officer (CEO) of Canadian Scotiabank and co-chairman of the IIF’s committee on market best practices, said: “Risk management is much more than just a monitoring function. It is a core responsibility of the CEO and all executive management. We emphasise that firms need to build risk management into their overall business strategies. The chief risk officer needs to be both a risk manager and a risk strategist, with an independent voice and as part of the highest levels of management.”

Another committee member, Cees Maas, formerly chief financial officer at ING, said the IIF was hoping to avoid too much involvement of government regulators. "Many of the problems that have arisen lend themselves to market-led solutions with the implementation of significant improvements in management areas by many individual firms. However, we recognise that there are areas where there may be benefits from further regulatory action."

The IIF launched the committee in November 2007. A final report will be issued in June.