EY - Remaking risk management in banking
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This document summarizes a presentation on remaking risk management in banking. It discusses progress in improving risk culture, linking business decisions to risk appetite, challenges around data and IT investments, and the impact of Basel III on business models. Some key findings include that most firms feel they are making progress in achieving a strong risk culture but have a long way to go, expressing risk appetite and embedding it into operations are top challenges, and Basel III is leading many banks to evaluate portfolios, shift from complex instruments, and potentially exit some businesses or geographies.
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EY - Remaking risk management in banking
- 1. Remaking risk management in banking 30 July 2013
- 2. Page 2 Disclaimer ►This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ►This presentation is © 2013 EYGM Limited. All Rights Reserved EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Remaking risk management in banking
- 3. Page 3 Today’s moderator JB King Ernst & Young LLP (US) Director, Marketing - Global Banking and Capital Markets Join today’s Twitter discussion: #EY_BankingRisk Remaking risk management in banking
- 4. Page 4 Today’s agenda ► Assessing risk culture ► Linking business decisions to risk appetite ► Data and IT challenges investments ► Basel III driving business model changes Join today’s Twitter discussion: #EY_BankingRisk Remaking risk management in banking
- 5. Page 5 Today’s presenters Rick Waugh Scotiabank Chief Executive Officer Patricia Jackson Ernst & Young LLP (UK) Leader of Financial Regulation Practice Hank Prybylski Ernst & Young LLP (US) Financial Services Office Advisory Leader and Leader of Financial Services Risk Management The information contained herein is a summary in nature. Viewers should consult their own professional advisors to address their individual circumstances and concerns. Remaking risk management in banking
- 6. Page 6 Progress on risk management: fourth annual study and report ► Study overview ► EY, on behalf of the Institute of International Finance (IIF) ► Assess progress in the implementation of risk governance since 2008 crisis ► Participants: ► 74 firms ► 36 countries ► 50 interviews with CROs and senior risk executives ► 68 online survey responses Remaking risk management in banking
- 7. Page 7 Progress on risk management: fourth annual study and report (cont.) ► Themes ► Consistent culture cannot be assumed ► Organizational values to need to be clarified ► Tools like stress testing should be redeveloped and used as management tools ► Continued investment in IT and data is essential ► Strategy should be rethought in light of new regulations ► Regulation, investor pressure and uncertain economic environments cannot be underestimated Survey available at: ey.com/banking Remaking risk management in banking
- 8. Page 8 Today’s agenda ► Assessing risk culture ► Linking business decisions to risk appetite ► Data and IT challenges investments ► Basel III driving business model changes Join today’s Twitter discussion: #EY_BankingRisk Remaking risk management in banking
- 9. Page 9 Opinion check How important is it to have a single culture inside a global bank? A. Critical B. Somewhat important C. Not very important D. Important but impossible to achieve E. Other and does not apply (EY, faculty, alumni) Remaking risk management in banking
- 10. Page 10 Progress in achieving a strong risk culture Remaking risk management in banking 0% 53% 44% 0% 10% 20% 30% 40% 50% 60% We have a long way to go We are making progress We have achieved a strong risk culture
- 11. Page 11 Action taken to review and assess internal risk culture Remaking risk management in banking 32% 7% 16% 45% 0% 10% 20% 30% 40% 50% N/A Cultural review by internal audit Cultural audits by third party Review and discussion with senior management led by task force
- 12. Page 12 Initiatives to strengthen risk culture Remaking risk management in banking 73% 71% 69% 56% 23% 16% Strengthening risk roles and responsibilities Enhancing communication and training regarding risk values and expectations Reinforcing accountability regarding risk management Aligning compensation with risk-adjusted performance metrics Changing the composition of the board and senior management team Changing compensation to reflect softer cultural issues
- 13. Page 13 Progress in achieving a strong risk culture Remaking risk management in banking ► Firms severely impacted by the crisis vs. all firms 80% 70% 60% 50% 40% 30% 20% 10% 0% 68% 54% 43% 32% We are making progress We have achieved a strong risk culture All Severe impact
- 14. Page 14 Today’s agenda ► Assessing risk culture ► Linking business decisions to risk appetite ► Data and IT challenges investments ► Basel III driving business model changes Join today’s Twitter discussion: #EY_BankingRisk Remaking risk management in banking
- 15. Page 15 Opinion check What is the biggest challenge your firm faces to risk appetite development and implementation in your organization? A. Using the risk appetite framework for managing risk B. Tracking and enforcing adherence to risk appetite C. Linking risk appetite to business decisions D. Expressing risk appetite for different risk types E. Other and does not apply (EY, faculty, alumni) Remaking risk management in banking
- 16. Page 16 Top five challenges to risk appetite development and implementation Remaking risk management in banking 29% 37% 43% 46% 65% Achieving sufficient clarity Determining the right metrics Using the risk appetite framework for managing risk Expressing risk appetite for different risk types Effectively embedding it into operational process
- 17. Page 17 Testing of individual business decisions against risk appetite Remaking risk management in banking 54% 5% 41% Not tested Largely testedSomewhat tested
- 18. Page 18 Risk appetite linkage to the annual firm wide business planning process Remaking risk management in banking 40% 2% 58% No linkage Significant linkage Some linkage
- 19. Page 19 Today’s agenda ► Assessing risk culture ► Linking business decisions to risk appetite ► Data and IT challenges investments ► Basel III driving business model changes Join today’s Twitter discussion: #EY_BankingRisk Remaking risk management in banking
- 20. Page 20 Fact check What is your firm doing to make stress testing easier and faster? A. Shifting to central testing models B. Improving aggregation of data C. Creating a central stress testing unit D. Creating more integrated models E. Other and does not apply (EY, faculty, alumni) Remaking risk management in banking
- 21. Page 21 Data and systems a key challenge across a range of topics Remaking risk management in banking 23% 38% 59% Business taking ownership of risk Systems and data Balance between sales-driven front office culture and risk-focused culture Top three challenges to strengthening risk culture 34% 35% 49% Shortage of resources Inadequate systems Difficulty in extracting and aggregating data Top three challenges to improving risk culture 54% 63% 71% Multiple or inconsistent regulatory requirements Systems architecture Data availability/data quality Top three challenges in implementing Basel III
- 22. Page 22 Change in IT spend over the last year Remaking risk management in banking 15% 22% 63% 0% 20% 40% 60% 80% Decreased Stayed the same Increased
- 23. Page 23 IT change under way Remaking risk management in banking Improvement of liquidity data management Support capital allocation compliance Convergence/reconciliation of risk and finance data Aggregation of group/firm data Strengthen internal stress-testing processes Capture of exposures across the group to single entities Integration of firm-wide stress testing data Capture and reporting on risks in VaR Recovery and resolution planning
- 24. Page 24 Today’s agenda ► Assessing risk culture ► Linking business decisions to risk appetite ► Data and IT challenges investments ► Basel III driving business model changes Join today’s Twitter discussion: #EY_BankingRisk Remaking risk management in banking
- 25. Page 25 Fact check Which of the following best expresses your investors’ tolerance for lower ROE (return on equity)? A. Investors are pushing for increase in ROE B. Low book to equity price is an impediment for capital- raising C. Investors demanding reduced costs including compensation D. Investors demanding business mix changes to deleverage further E. Other and does not apply (EY, faculty, alumni) Remaking risk management in banking
- 26. Page 26 Impact of Basel III plus G-SIB* requirements on common equity Tier 1 capital Remaking risk management in banking 30% 5% 0% 5% 13% 7% Less than 30% 31 to 50% 51 to 70% 71 to 90% 91 to 100% 101 to 130% Above 130% 40% * Global systemically important banks
- 27. Page 27 Percentage of the balance sheet (under the LCR*) accounted for by liquid assets Remaking risk management in banking 47% 29% 20% 4% 10%-20% Above 20% 5%-10% 2%-5% 0-2% 0% * Liquidity coverage ratio
- 28. Page 28 Effect of combined liquidity and capital changes under Basel III on business model Remaking risk management in banking 62% 43% 29% 13% Evaluating portfolios Shifting out of complex less liquid instruments Exiting lines of business Exiting geographies None of the above 8% 81% 44% 44% 17% 17% 2012 2013
- 29. Page 29 One-minute recap Remaking risk management in banking
- 30. Page 30 Resources ► http://www.iif.com/regulatory/standards ► ey.com/banking ► Remaking Financial Services: Risk Management Five Years After The Crisis (full study) ► Remaking Financial Services: Risk Management Five Years After The Crisis (Executive summary) ► ey.com/financialreform ► Follow us on Twitter @EY_Banking Remaking risk management in banking
- 31. Page 31 Contact us Lawrence (Hank) Prybylski Ernst & Young LLP (US) Patricia Jackson Ernst & Young LLP (UK) JB King Ernst & Young LLP (US) + 1 212 773 2823 lawrence.prybylski@ey.com +44 20 7951 7564 pjackson@uk.ey.com + 1 203 674 3446 jb.king@ey.com Follow us on Twitter: @EY_Webcasts Remaking risk management in banking
- 32. Page 32 Thanks for participating. Remaking risk management in banking
- 33. Page 33 Connect with us Watch us on YouTube Search on Ernst & Young webcast Follow us on Twitter @EY_Webcasts Remaking risk management in banking