Magazine article American Banker

Robert Morris Associates' New President Thinks the Banking Industry Can Use More Risk Management

Magazine article American Banker

Robert Morris Associates' New President Thinks the Banking Industry Can Use More Risk Management

Article excerpt

Robert Morris Associates' New President Thinks The Banking Industry Can Use More Risk Management

Banking is a risky business. And it's the risk part of the business that Malcolm T. Murray Jr. appears to have a special affinity for.

"I've spent my career in risk management,' Mr. Murray said in a recent telephone interview. "Risk management is the awareness on the part of management that ours is a truly risky business and our product is the ability to absorb and control that risk.'

Now, Mr. Murray, 41, is about to add another dimension to his career in risk management as he prepares to assume the presidency of the Robert Morris Associates, the 72-year-old national association of bank loan and credit officers.

"I don't expect to revolutionize anything [at Robert Morris Associates]-- RMA operates on a continuum,' Mr. Murray said. "[Still,] the industry can always use more risk management as a discipline.'

For Malcolm T. Murray--nicknamed Mal--risk is definitely where it's at.

Mr. Murray, who takes over his new job at Robert Morris Associates on Sept. 1, has spent his entire professional career at First Union National Bank in Charlotte, N.C. Now, he is executive vice president in charge of credit policy and approval, reporting to the bank's chief executive officer. He is also chairman of the bank's loan policy committee and a member of its funds management and bank management committees.

His overriding responsibility at First Union is to oversee the quality of First Union's loan portfolio.

His primary message as Robert Morris Associates president will be to emphasize the need for significant education about risk and make it a part of the mindset of all bankers.

"The successful bank will identify all kinds of risk and be aware of all the risk . . . and know the level of risk the organization can support from a philosophical standpoint. A bank should know how its risk tolerance will be allocated,' Mr. Murray said.

Types of Risk

Credit is, of course, one of the most obvious kinds of risk. Others that Mr. Murray cited are:

Funding risk--knowing where a bank's sources of funds come from and the reliability of those sources.

Liquidity risk--having sufficient availability of funds to meet the calls a bank might experience over time.

Risk from competition--as banks move into new areas because of competition they are taking different kinds of risk and operating outside their area of expertise. When bankers are dealing with new products, Mr. Murray said, they have to understand how the product will act under changing economic conditions.

Much of dealing with risk is making sure the left hand of the bank knows what the right hand is doing. "Each person has to understand their role in terms of the goals of the bank so that he or she won't do things that are out of the bank's character,' Mr. Murray said.

But unlike measuring fee income or noninterest expense, a lot of risk is not measurable and dwells in the realm of subjective and esoteric. "At many of the most important levels, risk is intangible. But in the last several years, the industry has been dealing with intangibles,' Mr. Murray said. In the past, he added, risk was quantitative and was essentially a function of a bank's loan portfolio. "But the essence of risk management is being able to look ahead several years.'

For a bank like First Union, which has benefited enormously from operating in the ebullient economic conditions surrounding North Carolina and the southeastern part of the United States, this prospective approach to risk management has a practical application. "We have to make sure that our risk controls are working' and that the loans we are making now will also be good loans in a depressed economy, he said.

But risk management in a small bank located in the nation's deteriorating agricultural belt takes on a different meaning, Mr. …

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