Banks warned over regulatory risk

WASHINGTON, DC – Banking organisations should not overemphasise regulatory risk at the expense of more significant business risks, according to John Allison, chief executive officer of BB&T Corporation, the North Carolina-based $107 billion financial services firm.

"A lot of the regulatory requirements don’t deal with real business risks, but deal with what I call politically correct risk, the risk that tends to be over-managed. In the long term we have to adhere to the regulatory clamour, but we have a huge increase in relative regulation driven by an overreaction to things like WorldCom and Enron. Inevitably that reduces the focus on something that will bite us in the future that we just don’t know about today.

"We have limited resources, and if we spend too much time and energy confronting that which is not economically significant, we lose the time and energy that we should spend on significant risks," he said at the Risk Management Association annual conference in Washington, DC held in early October.

He said Congress had given too much power to regulators: "Congress has delegated to regulators authority they should not have. Congress needs to be far more concrete about the laws they pass, or not pass them, because a lot of times the devil is in the detail.

"You can make laws that sound good but if in reality they turn out to be not what was intended, it is bad legislation. So in the broader context, Congress should not give their role to regulators," he said.

Allison also expressed concern that mathematical models may be overused in the determination of risk in the financial services industry. "We have made a lot of advance using mathematical models, however you can’t capture everything in the mathematics." OpRisk

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