Deutsche chair blames risk managers for lost risk control

The rise of professional risk managers has allowed front-line staff to abdicate responsibility for risk management, according to Deutsche Bank's Paul Achleitner

Paul Achleitner

The chairman of Deutsche Bank's supervisory board has blamed the rise of professional risk managers for an abdication of risk-taking responsibility by banks' front-line staff. In a keynote speech at the International Capital Market Association conference in Berlin last week, Paul Achleitner argued in favour of a more old-fashioned approach.

"In the old days, the front-line officer who was dealing with clients had direct responsibility for both revenues and risk. Alongside him or her, there was also an individual who was the risk controller. The controller oversaw whether the front-line person was in line with the limits that he or she had," he said.

As time passed, a new approach took root, Achleitner said, driven in part by the risk controllers' attempts to reinvent themselves. The job title changed, salaries improved and the risk function was given more resources. As a result, traders, loan officers and other originators of risk came to believe that managing the risk profile of the organisation was no longer their job, he argued, and the daily interaction between the two groups was lost.

"A process which started as a four-eyes principle ended up in a two-eyes-only situation, where you had one person who was only interested in generating revenues and the other one who was in charge of the overall risk – without benefiting from the knowledge of the front-line person but based on some complicated mathematical algorithms," he said.

Achleitner also argued that front-line staff were able to find ways to avoid the new, model-based control regime – for example, recognising that a AAA rating could protect instruments from risk function scrutiny.

A process which started as a four-eyes principle ended up in a two-eyes-only situation

"That happened not because people are evil. It was simply a consequence of human action as opposed to human desire," he said.

Achleitner was elected to chair Deutsche's supervisory board in 2012, a term that expires in 2017. He comes from a traditional investment banking background, having spent 11 years at Goldman Sachs in Frankfurt, London and New York. He previously spent four years in strategy consulting at Bain & Co, and is a member of the supervisory boards of Bayer and Daimler.

Achleitner concluded by reminding the audience that they were all risk professionals, for whom risk management should be the primary competence.

"You need – in every single transaction you engage in – to understand that you are not only responsible for the revenue; you are also responsible for the risk. It doesn't matter if you're a banker, an issuer or an investor, risk is everybody's business. The front line is the first line of defence, not just for the institution but for the system as a whole. If we actually take that back into the system by changing everybody's behavioural manner, I think we will have achieved a lot," he said.

Front-office staff at Deutsche Bank last month had their own reminder about culture and conduct in the form of a video from Colin Fan, the London-based head of corporate banking and securities. In the video, Fan warns traders not to be "boastful, indiscreet and vulgar" because it puts the bank's reputation at risk: "It will have serious consequences for your career and I have lost patience on this issue," he said.