Cultivate a Risk-Aware Culture to Ready Your Bank for Change

Change is about the only constant in banking today. Inside the organization, you’re processing a steady stream of requests for new products or customer services. Coming from the outside are regulatory updates and unpredicted pressures, such as the COVID-19 pandemic.

Knowing that a new demand is always just around the corner, taking time to nurture a culture in which every employee plays a role in managing risk will set your bank up to act nimbly, consistently and confidently every time.

To assist you in navigating this challenging journey, I outline the critical pieces you’ll need and the steps for implementation during a recent American Bankers Association podcast. I speak with Ryan Rasske, the ABA’s senior vice president for Risk and Compliance Markets. This episode builds on an earlier podcast discussion, in which Ryan and I spoke about how you can turn a solid risk management framework into a competitive advantage.

 In this latest 10-minute podcast, I present the three key components to put in place:

• Governance: Your risk management framework should be your institutional playbook. Start by linking your risk management strategy (including your risk appetite) with your business strategy, as well as detailing the role of your board and senior leaders. Document monitoring and reporting standards and issue identification, escalation protocols and remediation tactics.

• Operating model: Distinguish the roles and responsibilities of everyone across your first, second and third lines of defense. This means your first line needs to know it owns the risk it generates from its daily business, while your second line provides independent oversight and challenge. Your third line comes in with objective assessments that validate you’re operating safely, soundly and within targeted risk levels.

• Standard definitions and taxonomies: Across the enterprise, your people need to speak the same language and approach risk ratings consistently. Think about how you bucket different categories of risk and use standard scales for assigning their severity.

Implementing these key components is not a one-time exercise. Dedicate time to regularly review and update these elements to match the evolving needs of your organization. Two related tools – a regulatory inventory and a process inventory – can help you further cultivate this desired culture and inform risk-based decisions when you face the next change. I detail what these tools are and how to best use them in an accompanying white paper, Turning a Solid Risk Management Framework into a Competitive Advantage.

Listen Now

A risk management framework isn’t a one-size-fits-all approach: What works for a major national bank doesn’t match what a regional bank needs. Listen now to the podcast, where I drill down deeper into the key components of an effective risk framework. My goal is to give you the insights to introduce sustainability and best practices in how you identify, manage and address risk.