Risk Element Considerations for Management and Boards, Part 1
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Changing regulations and new and emerging risks in the business place means that banks must review their risk management process much more frequently. Oftentimes, leadership may determine that changes are needed to their current systems and processes.
Risk culture, attitudes about risk management and proactive versus reactive risk management are used to evaluate the current state of a bank’s risk management process.
- The board must understand management’s risk culture. Healthy risk culture not only looks at risk-aversion; it also assesses the risks and rewards of new opportunities and makes risk-informed decisions.
- The board’s attitude toward regulation and risk management has an intangible, trickle-down effect that sets the tone for the entire organization’s risk culture. Management and employees can either view risk management as an unnecessary burden, or they can think of the risk management function as a valuable element in accomplishing the bank’s strategic goals.
- It’s important for management and the board to be proactive when it comes to risk management. Instead of waiting for a potential threat to occur, management and the board should be proactive by staying updated on current threats and the mistakes of other banks.
A strong risk assessment process and a healthy risk culture will better position a bank to proactively identify new risks, be more capable of adapting to changes in existing risks and improve its ability to take advantage of new opportunities.
Read more in the Banker’s Digest article Risk Elements that Management Should Know and Boards Should be Asking, Part 1 by Weaver’s Bruce Zaret and Michael Winters.