Magazine article American Banker

Use outside Accountants to Help Manage Risk, Fed Governor Urges

Magazine article American Banker

Use outside Accountants to Help Manage Risk, Fed Governor Urges

Article excerpt

WASHINGTON -- Financial instruments have become so complex that banks should consider hiring outside accountants to handle some risk-management duties, Federal Reserve Board Gov. Susan M. Phillips said Thursday.

"For years it was sufficient to have independent loan review and internal audit functions address credit and operational risks," Ms. Phillips told participants at the American Institute of Certified Public Accountants annual banking conference.

"Now, however, a number of organizations with significant market risks are finding that an independent risk management function is an appropriate control approach."

Certified public accountants, by virtue of their "training, experience and credibility" have a critical role to play in risk management, she said.

Ms. Phillips also said that bankers must spread internal risk-management controls throughout their institutions, with senior management setting an example of how the entire company should treat the subject.

Risk management "cannot be relegated to corporate staff, such as internal audit," she said.

Ms. Phillips told the audience that internal controls are not just mechanical points on a flowchart.

"[They] involve human beings who sometimes may not understand their role in the company, may be influenced to bend the rules, or may have incentives that conflict with shareholder interests," she said. …

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