I recently reviewed the McKinsey Working Papers on Risk, Number 43, and noted their views of the role of the CRO and CFO in bank risk governance, within a broader enterprise risk management (ERM) framework. McKinsey advocates a strategic approach in the paper, including the following aims:
- Ensure compliance (notably regulatory requirements),
- Limit potential losses (focus on risk transparency and accounting/economic perspectives),
- Improve profitability (consider transfer pricing and optimise ALM),
- Support growth (and consider risk design of new product offerings),
- Improve stakeholder management (including satisfy board needs for transparency, early warning, and target/retain target credit ratings), and
- Define governance (including the role of CRO and CFO within the organisation, define ERM approach across the group, define carefully incentive systems for risk and business lines, and ensure the appropriate human capital development and risk culture).
The paper specifically cites the role of risk governance, including the need to consider the role of risk in board and EXCOs and an integration of risk in strategy, management planning, incentive setting, and risk culture of the firm. Go to www.mckinsey.com for this useful document on the role of risk governance and ERM for commercial banks.
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