February 18, 2003 by Canadian Underwriter
Financial institutions are showing an increased understanding of the need for enterprise-wide risk management (EWRM), says a survey of financial institutions from The Risk Management Association (RMA) and First Manhattan Consulting Group.
Among 30 U.S.-based financial institutions, the study found that those in the advanced stages of EWRM had much in common when it comes to measurement methodologies and management practices.
“Measuring and managing risk across the enterprise is an evolving science, but financial institutions of all sizes are recognizing the need to do it,” says Maurice H. Hartigan II, president and CEO of RMA. “Regulatory requirements notwithstanding, measuring and managing enterprise risk makes good business sense. The institutions that make the effort will find their investment rewarded.”
About 43% were classified as “leaders” in EWRM, although only 10% are considered as truly advanced. Of the institutions surveyed, 74% have a chief risk officer reporting to the president and/or CEO. In about 21% of the institutions this person reports to the board. About 75% of the “leaders” produce a risk report.
Risk-weighted measures are used in the institution’s incentive compensation structure by all of the “leader” companies.
RMA predicts that the interaction between the risk department and the rest of institutions will intensify, creating a welcome system of check and balances and a “constructive tensions” between different points of view.