Is Your Risk Governance Robust Enough?
Published on Wednesday, September 27, 2023
Banks have long been considered very advanced in their risk management systems. Capital adequacy guidelines and regulation have evolved decades ago from simple rules - applying percentages of asset categories - to a risk-based assessment founded on sophisticated systems and simulations. Stress tests considering historical financial crises and hypothetical ones were devised, self-imposed, and imposed by banking regulators. Banks were considered experts in asset/liability and interest rate risk management.
Yet, within a few months, Silicon Valley Bank failed and Credit Suisse had to be rescued and absorbed by UBS. The full reasons for their demise will eventually be elucidated. But in the meantime, in the case of SVB, interest rate hikes, asset liability mismatch and concentration in high technology companies – three core competencies in banking risk management - were invoked. In the case of 167 years old Credit Suisse, the Bank of England provided some insights on July 24, 2023, by announcing the Prudential Regulation Authority (“PRA”)’s highest fine ever to Credit Suisse for significant failures in risk management and governance between 1 January 2020 and 31 March 2021 and breaches of four PRA Fundamental Rules (a first) in connection with the bank’s exposures to Archegos Capital Management. "Credit Suisse’s failures to manage risks effectively were extremely serious, and created a major threat to the safety and soundness of the firm” said PRA’s CEO.
If major banks can fail due to unsound risk management, how confident are you that your company’s or organization’s approach to risk governance and enterprise risk management is robust enough?
Whether you are a director, an executive or a manager, you may be wondering if your company is exposed to global risks or other potential events. And if so, are you and your organization ready to face these challenges?
Should you need advice on the appropriate risk governance and enterprise risk management approach for your organization, please contact us.
Baldwin Global is an independent advisory group offering professional services, education and training in risk governance and enterprise risk management. We help our clients’ boards of directors and management teams attain their objectives by embedding sound risk oversight and management practices into their decision-making process to have a significant positive impact on their business.