ABA Banking Journal - April 2011 - (Page 16)
ABA Community BAnking | RIsK mANAGemeNt A check-up for risk Effectively assessing and managing risk is more challenging now, but essential By meLANIe scARBOROUGh, cONtRIBUtING edItOR I n a way, risk management defines banking, and always has. It just wasn’t always called that. Today, however, the science of risk management, thanks to the financial crisis aftermath, has become far more complex. Many community banks (and large banks for that matter) struggle with its principal components: quantifying the bank’s appetite for risk; translating board dictates into procedures; stress-testing assets; guarding the bank’s reputation—and all to regulators’ satisfaction. In principle, it doesn’t have to be all-consuming. Todd Cooper, vice-president and general manager of Enterprise Risk Compliance business for Wolters Kluwer Financial Services, says enterprise risk management (ERM) boils down to doing two things well: 1. The bank’s risk picture must be clearly defined in the boardroom and understood in the executive suite. 2. The bank must hold operational units accountable for staying within the defined risk perimeter. Kenneth Proctor, manag ing director, Risk Management, for Abound Resources, recommends a third step: Setting contingency plans. “What happens if you actually achieve your objectives but the economy goes south?” he asks. “In 2005 everybody wanted to grow their loan portfolios and CRE. A lot of them did that—then the bottom fell out of the real estate market.” 16 | ABA BANKING JOURNAL | april 2011
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