Risk management is the identification, quantification, and proactive management of risks—and it is a key factor for value creation in banking. Given today’s unstable two-speed economy, every bank needs to evaluate and improve its risk-management capabilities. Here are some of the most significant risks in financial services:
- Credit risk from lending activities
- Market and counterparty risk from trading activities (notably, derivatives trading)
- Liquidity risk from mismatched assets and liabilities
- Operational risk from error and omission in core systems and processes
Given the effects of the financial crisis and today’s market and economic environment, financial institutions must answer some important questions:
- How can an institution efficiently manage and employ its financial resources (funding and liquidity, capital)?
- ow can the effectiveness of risk management be improved? What requirements does this imply for governance, systems, and infrastructure?
- What is the impact of new regulatory requirements (such as Basel III, Solvency II)?
- How can an institution identify the most important risks it faces—and how can they be made transparent and managed?
Our Risk Management practice has five main areas of focus:
- Office of the Chief Risk Officer. Defining a conceptual framework and organization for the steering of funding and liquidity, capital management, definition of risk appetite, integrated management of risk and return, and risk disclosure and reporting
- New regulation. Assessing the impact, and supporting the implementation, of new regulation on business models and products
- Risk operations excellence. Defining and applying a target operating model and organization for a risk function
- Risk mitigation. Defining portfolio optimization and portfolio management measures; creating transparency on critical portfolio risks; and implementing portfolio restructuring strategies
- Risk information technology. Assessing the functionality and performance of the risk IT infrastructure, and defining a strategic risk architecture
We advise banks to plan for – and stay on top of – their key risks and compliance areas to add benefit and counter major problems and threats.