During RMA’s March 13th Audio Conference, Ken Weinstein, VP, Special Projects at Newtown Savings Bank, discussed the critical need for banks to develop an operational risk management program in the post-crisis era. High profile risk events, regulatory and investor expectations, board and management accountability, merger and acquisition activity, and business improvement opportunities, are among the factors driving the increased focus on operational risk management.
Operational risks are much more significant than they were at the start of our careers. As such, boards and management need a clear view of how risks are managed. While oversight and control approaches have changed to better address risks, they tend to be piecemeal, largely reactive, driven by regulators, and disconnected from the board and top management. Community banks have an opportunity to regain control over how operational risks are managed, and do it in a way that makes sense for them.
Mr. Weinstein outlined his objectives for an effective operational risk program:
- Clear accountability for managing operational risk
- Identification, evaluation, and acceptance of material risks
- Open communication up, down, and across the organization
- More informed decision-making
- Reduction of cost (monetary and non-monetary) through prevention of foreseeable losses
- Resource commitment proportional to business benefits
He suggested customizing your approach to your organization’s culture and goals by:
- Keeping the language simple, and drawing parallels to credit risk management whenever possible.
- Making risk self-assessments the foundation of your program.
- Considering both the expected case and the realistic worst case.
- Considering having someone with a business background take the lead.
- Starting small and proving to yourself that it is effective.
- Involving staff in understanding the results.
- Sharing top risks with the board and senior management.
- Considering improving collection and reporting of loss data.
- Coordinating with the various control functions.
For an in-depth session on the steps community banks should take to develop an operational risk program, please register for RMA’s Governance, Compliance, and Operational Risk Conference (GCOR VI) in Boston, April 24-26.