Is Your Institution (Bank or Non-Bank) Sleepwalking into a Crisis?
Risk management is not a panacea or a fait accompli to value protection in any institution. The most recent failures of the Banks in the US and including Credit Suisse are proof of that. Your risk managers, internal audit, and your external auditors may be “blind” to some risks if their focus continues to be singularly on “accounting” e.g. on Capital adequacy and balance sheets. The failures in the US banking system had very little to do with these 2 points. Coincidently, SVB’s external auditors had given them a “clean bill of health” in February this year (see article in the link below).
Some difficult questions to consider:
- What about your institution’s Operational Risk management and or Enterprise Risk management programs, how robust and effective are they? Have they been given a “clean bill of health”?
- How comfortable are you with the decision-making of the leaders of your risk management departments? (key person/people risk)
- How risk intelligent are the executives/Board members?
- What do you think about your counterparty’s risk management?
- How independent are your Risk managers? (speaking truth to power or yelling to the emperor when he is “not wearing clothes”
- Are your institution’s risk appetite and risk tolerance levels being revisited/recalibrated?
- Have you considered the impact of these failures on your organization/industry/island? (knock-on effects)
- What are your emerging nonfinancial risks that can affect you? Consider, for example, a few of the risks (under Operational risk) that SVB identified in their 2022 annual report:
- “We face risks from a prolonged work-from-home arrangement, as well as from our eventual implementation of a broader plan to return to the office or increase virtual working arrangements. • We face risks from our interactions with business partners, service providers, and other third parties. • The soundness of other financial institutions could adversely affect us”……
Hindsight is valuable, and the final “lessons learned” from these events have not been completely identified, but the risk has eventuated with massive impact and with contagion effects.So what now?