Risk committees, chief risk officers, risk appetite programs, stress tests and enterprise risk management programs were not a major part of most board’s focus six years ago — but they are now. As a risk committee typically coordinates risk oversight with the audit and other committees, today’s post builds on yesterday’s piece, Joining a Bank’s Audit Committee. Please understand, there are so many risks that can undermine a bank today that this column simply tees up the where a committee member might focus his/her time.
Most bankers understand the concept of financial risk. For those directors joining a risk committee? Let’s just say they really need to understand the risks of running an operation that relies on numerous internal processes, systems and people to be successful. Indeed, a committee member must focus on the full range of complex and often interrelated risks, including:
- Strategic
- Credit
- IT
- Market
- Operational
- Compliance
- Liquidity
- Legal
- Reputation
Yes, risk oversight is a fundamental responsibility of the entire board; however, I hear that individual risk committee members should develop a broad view of issues across their organization to both see and know how they relate to one another. My two cents: (a) its imperative to define your own bank’s risk appetite before communicating risk management plans throughout the bank (b) if you have one, work with your chief risk officer to determine what forward-facing metrics you want consistent focus on in order to identify and react to emerging threats.
If you’re interested…
Here are three resources that can help you go deeper into this topic:
- Deloitte’s “The Risk Committee Resource Guide for Boards”
- Crowe Horwath’s “Do Risk Committees and Chief Risk Officers Make Banks Safer?”
- Fifth Third’s Risk & Compliance Committee Charter
Tomorrow’s focus: a check-in from the Bank Board Training Forum at the Hermitage hotel in Nashville, TN.
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