Community Bankers of Iowa Monthly Banker Update May 2014 | Page 13

Banish the Separative Approach to Risk Management
Written By: Keith Monson, Vice President of Application Compliance - Computer Services, Inc.
The recent financial crisis
is slowly fading from our
memories, yet its lasting effects
continue on. One area that’s
garnering increasing attention
from regulators and examiners is risk management. Regulators
are of the general opinion that if bankers aren’t collectively
considering all their risks, then they are not really managing
risk, which could foster the type of poor decision-making that
led to the financial crisis in the first place.
Rather, a bank’s risk areas should be viewed as interactive
parts of a solid whole, each affecting the other. This approach,
called Enterprise Risk Management (ERM), helps both
management and the board of directors gain a complete picture
of all risk areas and how they work together to ultimately affect
a bank’s overall performance.
The Office of the Comptroller of the Currency (OCC) has
defined eight risk areas that should remain a top priority for
all banks–credit, interest rate, liquidity, price, operational,
compliance, reputation and strategic. An essential factor with
ERM is the ability to set key risk indicators (KRIs)—a set of
markers that help proactively identify changes in the probability
of risk incidents—that take subjectivity out of the risk rating.
In other words, management will no longer rely on educated
opinion alone to make decisions.
Overcome the Obstacles to Establishing ERM
Financial institutions must ensure they are implementing an
ERM program that is tailored to their size and complexity. Start
with a strong business plan for the coming three years and
apply all the specific risk measurements, then branch out from
there.
The obsta