Banking is about managing risk across multiple risk types. In fact, the bank's raison d'etre is to accept structured uncertainty and manage the associated risks with the goal of capitalizing on these risk differences to earn profits. The skill with which the bank balances alternative risk/reward strategies will determine its ability to deliver on shareholder returns. However, in a market environment where competition, globalization, market volatility and structural change are increasing, banks need to manage their risks even better and with greater transparency. In addition, Basel II requirements have galvanized financial institutions across the world to re-evaluate the role of risk management.
Barriers to an integrated risk management process include:
- Lack of consistent measurement methodology.
- Hidden information gaps in the quantification of risk.
- Lack of integrated risk procedures that are "owned" by a specific functional role embedded in the organization.
In order for IT to help the risk management department overcome these barriers they must invest in solutions that combine many types of risk, such as credit risk, operational risk, interest rate risk, liquidity risk, price risk, compliance risk, foreign exchange risk, reputation risk, country risk, management risk and more. In our new book, The Performance Manager for Banking, IT and Risk Managers can learn more about performance management as it pertains to decision areas such as:
- Credit Risk: The possibility of a loss due to a failure to meet contractual debt obligations.
- Operational Risk: The risk of loss resulting from internal processes, systems and people, or from external events.
- Market Risk: The risks associated with various classes of assets and liabilities.
