A bank’s ability to successfully manage the boundaries between credit and operational risk is directly correlated to its ability to get past its operational silos. Eric Holmquist, Managing Director of Enterprise Risk Management at Accume Partners, stressed this point during January 10th’s Risk Management Audio Conference, highlighting the need to address risk holistically.
Mr. Holmquist stated that risk is never neatly segmented; it always contains elements of various types of risk. In order to maintain a sound operating environment, financial institutions must understand and manage the boundaries between risk types.
Achieving that starts with awareness of common trouble spots and a focus on the following:
- Documentation – End-to-end maps are a must with roles and responsibilities clearly defined. Models should be opened up at least annually: validate all logic and assumptions, verify data, and test any model of consequence.
- Operational Transparency – Achieved through cross-functional risk assessments and scenario analysis.
- Collaboration – Effective risk management starts with effective change management.
With awareness comes accountability. Mr. Holmquist emphasized that risk management is everyone’s responsibility and it starts with senior management. If this tone is established at the top of the house, it will trickle down to every level of the organization and become ingrained into the culture.
With widespread communication, effective change management, and good documentation, a bank can begin closing the boundaries between silos and work toward achieving a sound operating environment.
Mr. Holmquist will share more of his insights at GCOR VI, April 25-26 in Boston, where he will speak about the role of risk management in the development of business strategy.
Please join us for the next offering in the Risk Management Audio Conference Series – Role of the Board in Risk Governance – on February 14, 2012 at 1pm ET.
