Financial services leaders addressed two questions during an RMA chapter panel discussion this spring:
What do you mean by success at your enterprise and how does risk management contribute to that success?
RISK MANAGEMENT IS not purely about financial intelligence. In the future, perhaps in 40 years, risk management will be about "fused intelligence." It will consider risk systemically, recognizing that risk does not reside in one organization or one department of an organization. These predictions by Andrew Freeman, executive director of Deloitte Center for Financial Services, set the tone for the New York Chapter's senior leadership panel this past spring.
While the risk management journey has advanced considerably in the past 40 years, it's still far from Freeman's vision of the future. Three chief risk officers and the head of risk for banking supervision at the Federal Reserve Bank of New York joined Freeman in a discussion moderated by New York Chapter president Carl Adams, who asked the panel: How do you know when you're successful, and do your institutions understand Risk's contribution to the bottom line?
Hillary Ackerman, CRO, Goldman Sachs Bank, said shareholder satisfaction certainly is part of that definition. Running the business with a level of safety and soundness that makes the regulators and rating agencies comfortable is important, she noted, emphasizing, "The root of Goldman's success results from an embedded risk control mind-set that runs throughout our firm."
Goldman's enterprise view of risk management is allencompassing and includes viewing macro events on a geopolitical level, an industry level, and a counterparty level. It includes a view of markets and their psychology as well as an understanding of the dynamics of all Goldman's businesses and making sure it has the infrastructure to assess the risks and monitor them. "Our enterprise view also requires that we understand the variables that can impact our businesses and that we change our views related to them," said Ackerman.
Martha Cummings, head of Risk, Banco Santander, said Risk and the businesses would describe success differently. "To Risk Management, success means we don't lose money and we make money. The businesses would say success means we make money and we don't lose money."
Those transposed definitions reflect the natural tensions that exist between the two groups, and it can be healthy tension, she said. "The goals are not necessarily different, but the order of success and priority is somewhat different at different times."
Risk management is part of the DNA of Santander, said Cummings, noting that Risk reports to the vice chairman and is completely separate from the business. "When I first joined Santander, I heard cheers erupting from an office, so I asked if someone had just scored a major deal. 'No,' I was told. 'We just got Risk's approval.' That was a cause for celebration. Winning the client was easy compared to getting Risk's approval."
Charles M. Trunz III, chief risk officer Americas, Bank of Tokyo-Mitsubishi, said his organization's success is linked to the vibrancy of Japan's economy. "My institution measures success on its ability to earn a return and service clients, but we also measure success in terms of our reputation, capital base, and liquidity base," he said. "If something happens to the safety and soundness in any one of those areas, it will negatively impact the country of Japan and its people."
Trunz explained that Risk Management at Bank of Tokyo-Mitsubishi approaches business as an advocate. "It's not a question of saying no, it's a question of saying how," he said. "We are in the business of taking risk. We need to measure, evaluate, and create a common denominator for risk so that we can measure it across the enterprise and against our economic capital."
Offering the regulatory perspective on success, Michael J. …