The credit crunch reinforces the need to focus on risk management, but only 14% of top executives at nearly 40 global banks say they have a consolidated view of risk, Ernst & Young reports.
"Seventy-five percent of the leaders we spoke with in Canada and around the world said creating a risk-aware culture throughout their organization was vitally important," explains Paul Battista, Ernst & Young Partner in Toronto.
"One of this year's biggest lessons is that unidentified risk can lead to catastrophic results. We now need to be prepared for the unexpected. But these
organizations are facing real obstacles as they work to achieve that."
In Navigating the crisis, Ernst & Young's second annual study on risk
governance, the firm noted organizational silos, decentralization of resources
and decision-making, inadequate forecasting, and lack of transparent reporting
as the major barriers to effective enterprise-wide risk management.
Battista says if the phrase "risk management" was viewed in the past as a narrow and often little-understood domain, this year's dramatic events have highlighted how central risk management is to an organization's very survival.
"The current crisis has reminded banks - as well as all other organizations - of the need to build and effectively maintain strategic risk management programs now if they want to succeed in 2009 and beyond," Battista says. "Risk management must become top-of-mind for everyone within an organization if we're going to create a stronger culture of risk awareness in banks."
That means addressing issues like weaknesses in risk governance, as well as the need for improved collaboration between risk and finance, through both top-down and bottom-up approaches.
Respondents unanimously agreed that in order to create a more pervasive culture of risk awareness in the banks, the discussion of risk must be elevated to the strategic level by encouraging much closer collaboration across functions, business units and risk classes.
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Other key survey findings include:
- Eighty-six percent of those surveyed indicated that their banks are
implementing a variety of projects designed to provide a more
comprehensive approach to risk. However, only 16% said they have a
well-defined, shared vision of what that would look like.
- Respondents consistently cited the need for better information flow
and reporting in the area of risk. Poor data quality, gaps in data
flow, and the sheer volume of data are just a few challenges banks
face.
- Sixty-seven percent of executives indicated that they were underway
with the process of implementing consolidated risk reporting across
their organizations, but only 9% felt they have truly been able to
aggregate data across the enterprise.
- A vast majority of this year's survey respondents said their
organizations do not have well-defined, rigorous processes for
forecasting risk. However, all recognized the need to strengthen
forecasting by developing more formal processes and more forward-
looking risk-assessment tools.
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About the study
Ernst & Young commissioned Broderick & Company, an independent market strategy firm, to conduct a global market survey of key industry opinion leaders from leading banks. From May through October 2008, Broderick completed in-depth, qualitative interviews with 48 senior executives from 36 major banking institutions around the world, including Canada. Interviewees included a mix of senior executives in each organization, including chief financial officers, chief risk officers and heads of business units, as well as heads of functional divisions including finance, operational risk, internal audit, compliance, legal and strategy. For the full study, Navigating the crisis, please visit ey.com/banking.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and
advisory services. Worldwide, our 135,000 people are united by our shared
values and an unwavering commitment to quality. We make a difference by
helping our people, our clients and our wider communities achieve their
potential. For more information, please visit ey.com/ca.
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