Too Good to Fail: Defining the New Gold Standard for Risk Management in Financial Services

March 2011
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Too Good to Fail: Defining the New Gold Standard for Risk Management in Financial Services

At a glance

Regulatory and structural changes in the financial services industry impact how these organizations govern and manage risk. This presents an opportunity to reexamine and enhance strategies, processes, and infrastructures for measuring performance and analyzing risk. So what should financial institutions do to fundamentally enhance the way they address this?

The rapid changes taking place in the financial services industry have significant implications for how financial services organizations govern and manage risk. There is a need and an opportunity to re-examine and enhance most organizations’ strategies, processes, and infrastructures for measuring performance and analyzing risk.

Financial institutions should fundamentally enhance the way they govern and manage risk.

  • Rather than primarily analyzing risk by type (such as market, credit, and operational risk), the risk management model should be aligned to the business model, and the focus should be on the underlying asset class and product (such as commercial real estate).
  • Institutions should rebalance the relationship between risk managers and the business.
  • Risk should be managed in the context of risk appetite and strategy.
  • Financial institutions should shift to an integrated reporting framework.
  • Performance should be measured on a risk-adjusted basis.