A View from the Top: Credit Risk Management Dashboard Reporting for Financial Institutions

July 2011

The most recent financial crisis was driven in part by the inability of financial institutions to effectively identify and manage underlying credit risks in sophisticated investment vehicles. Within financial institutions, the risks being taken by individual lines of business may have been well understood. However, how those risks were correlated, and their cumulative impact on the organizational risk profile, were not. The lack of a portfolio view of risk is due, in part, to fragmented technology and inadequate credit risk reporting.

In order to gain a full understanding of operating results and respond effectively to changing risk dynamics, risk managers must be able to quickly assimilate significant portfolio issues and drill into relevant data as necessary. While credit risk reporting frameworks vary across institutions, the most effective frameworks adhere to a standard set of design principles. Such reporting should:

  • Reflect the unique risk drivers and characteristics of the business.
  • Synthesize data metrics in a manner that focuses attention on the key messages underlying the numbers.
  • Facilitate more accurate interpretation of risk events and trends and drivers of those trends.
  • Link the cause and effect relationship to risk and return.
  • Reinforce strategic goals through the monitoring and reporting of consistent performance measures.
  • Leverage common performance measures, such as growth, risk, return, and external drivers viewed across the credit risk management lifecycle.
  • Use visual tools to accentuate metrics and directional changes in trends that warrant further attention.