Banks Need to Revisit CRO Compensation and Board Risk Committee Composition

The investigation into Wells Fargo’s community banking sales practices, including the role of risk management and the board in these practices, has many in search of questions of what could be learned to mitigate future breakdowns in the flow of information on emerging risk issues to key decision-makers. read more

Risk and Regulatory Insights: Reconciling Default Concepts for Risk Management Analytics

Various regulatory, accounting and portfolio management exercises require different credit loss estimates. This has created confusion in the industry over what measures of default to apply and how to produce them, resulting in the proliferation of multiple credit analytic tools within firms. This profoundly affects risk management activities as it has become more difficult to reconcile default estimates and communicate outcomes to decision makers. read more

Lessons in the Dynamics of Risk and Uncertainty

For some time, I have reflected on the dynamics of the firm decision-making process under imperfect information, contemplating how we, as risk managers, can improve our communication with boards and senior leaders — as well as identify the boundaries of our increasingly analytical-driven risk management processes. read more

Risk and Regulatory Insights: The Quest for Integrated Risk Analytics

Financial risk management has witnessed a revolution in advanced analytics over the last 20 years. New analytic techniques combined with quantum leaps in computing power provide risk managers with an array of tools to better measure and manage risks of various types. Integrating analytic capabilities offers great potential for risk managers and their firms; however, it remains an elusive goal for much of the financial industry. read more

Risk and Regulatory Insights: Are Banks Prepared for 2017’s Risks?

A post-election market euphoria may be masking a set of forces with the potential to unleash extreme volatility here and across the globe in 2017. After the financial crisis, attention to strengthening risk management practices across the industry grew, largely from intense regulatory focus embodied by such rules as heightened standards for risk governance. However, the economic environment of the last 5 years has not tested the resilience of risk management under anything approaching stress conditions. The question is whether the industry can maintain risk vigilance at a time when a long-awaited economic expansion may just be around the corner and as a host of other potential risks stalk financial markets. read more

Risk and Regulatory Insights: Why Anchoring FHA Premiums to Actuarial Soundness Is Important

In a remarkable display of the speed of change in philosophy over FHA policy between the Trump and Obama Administrations, the new Administration on Inauguration Day suspended a recently announced 25bps reduction in FHA mortgage insurance premiums (MIP). FHA premiums which should be set based on statistically valid pricing models are instead overly influenced by policy. This is no way to run a portfolio where taxpayers face a contingent liability on future defaults on the $1 trillion plus FHA Mutual Mortgage Insurance (MMI) Fund. Providing FHA with the tools and analysis to effectively price and manage the MMI Fund helps ensure the long-term financial viability of this federally guaranteed loan portfolio. read more