Global banks have limited view of risk

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NEW YORK - Only 14% of respondents in a survey of top executives at around 40 global banks indicated they have a consolidated view of risk across their organisations, according to Ernst & Young's second annual risk study.

The survey, 'Navigating the crisis', says the economic crisis has exposed inherent weaknesses in risk management, forcing banks to improve their risk governance processes, increase the collaboration between risk and finance functions, and make instilling a risk culture a priority.
Organisational silos, decentralisation of resources and decision-making, inadequate forecasting, and lack of transparent reporting were cited as major barriers to effective enterprise-wide risk management. And the need to create a risk-aware culture throughout firms emerged as a top priority in the study, with three quarters of all respondents citing its vital importance.

"In light of recent events, there was strong agreement that managing risk effectively requires both top-down oversight and bottom-up involvement from front-line risk takers," says Bill Schlich, leader of Ernst & Young's global banking and capital markets practice. "To create and instil a culture of risk awareness within banks, risk management must become everyone's business."

To do that, respondents agreed the discussion of risk must be elevated to the strategic level, with much closer collaboration across functions, business units and risk classes. Some 86% of those surveyed indicated their banks are implementing a variety of projects designed to provide a more comprehensive approach to risk. But only 16% said they have a well-defined, shared vision of what it would look like.

Respondents consistently cited the need for better information flow and reporting in the area of risk. Poor data quality, gaps in data flow and the sheer volume of data are just a few challenges banks face. Sixty-seven percent of executives indicated they were under way with implementing consolidated risk reporting across their organisations but only 9% felt they have been able to aggregate data across the enterprise. Survey participants agreed greater transparency, faster delivery and better synthesis of data must be top priorities.

"In last year's study, identifying emerging risk was reported to be a relatively low priority on the path to better risk management," says Hank Prybylski, head of Ernst & Young's global financial services risk management practice. "The current crisis demonstrates the need for firms to focus on emerging and unforeseen risk."

Most of this year's survey respondents said their organisations do not have well-defined, rigorous processes for forecasting risk. But all recognised the need to strengthen forecasting by developing more formal processes and more forward-looking risk assessment tools, and implement more frequent executive risk committee meetings to monitor issues and events, create detailed scenario modelling, and mandate periodic portfolio reviews to monitor leading risk indicators.

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