Episode 24: CROs and Risk Committees: Key Insights for Banks

In this episode of the Risk Intel podcast, CEO and Co-founder of Strategic Risk Associates (SRA), Michael Glotz, joined host Ed Vincent to delve into the dynamics of effectively engaging risk committees in the financial sector. This insightful conversation provides a wealth of knowledge about the roles, responsibilities, and best practices associated with these committees, offering valuable insights for banking executives and Chief Risk Officers (CROs).

Understanding the Role of Risk Committees:

This episode opens by shedding light on the two primary types of risk committees — executive level and board level. Executive risk committees are typically instituted in smaller banks and are composed of the executive management team, including the Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer. On the other hand, board-level risk committees come into play as banks expand, usually when their assets surpass the billion-dollar mark. These committees are specialized units with a focus on managing and overseeing various risk aspects.

Crucial Responsibilities of Risk Committees:

A fundamental responsibility of a risk committee is setting the risk appetite for the bank. This involves defining the extent of risk the bank is willing to undertake, especially in areas such as credit, interest rate risk, and liquidity. Equally important is ensuring the implementation of an appropriate risk framework, tailored to the bank's specific size and complexity. This includes the integration of essential elements like personnel, systems, and processes. Risk committees are also tasked with comprehending the top risks that the organization faces, often summarized in atop-ten risk report. Additionally, they scrutinize past losses incurred by the bank and investigate unforeseen losses, with the aim of strengthening risk mitigation strategies.

The Integral Role of the Chief Risk Officer (CRO):

The Chief Risk Officer (CRO) at a bank takes center stage in this discussion. The CRO plays a multifaceted role in guaranteeing the presence of a robust risk framework, encompassing aspects such as risk positions, technology, processes, and personnel. Beyond risk management, the CRO is responsible for overseeing risk management throughout the organization and fostering a culture of risk management. This culture is vital for cultivating an environment where each executive takes accountability for efficient risk management.

Best Practices for Success:

The conversation further delves into best practices that can empower both risk committees and CROs in effectively executing their roles. These best practices include comprehensive reporting, which facilitates efficient management of risk issues across the bank. Providing a holistic view of risk management is crucial, including the tracking of risk improvement activities and ensuring continuous monitoring of risk through the utilization of key risk indicators. The ever-evolving nature of risks necessitates more frequent monitoring, extending beyond annual assessments.

Concluding Thoughts:

The episode concludes by emphasizing the pivotal role of the CEO in setting the tone for the organization's risk culture. Risk committees should prioritize the creation of a holistic view of risk management and advocate for continuous risk monitoring to keep pace with the dynamic nature of evolving risks.

In a financial landscape that undergoes rapid transformations, understanding the nuances of risk committees and the roles of CROs is imperative for efficient risk management. Michael Glotz and his team of risk experts at Strategic Risk associates, equip banking executives and risk officers with the knowledge and best practices required to master the art of engaging risk committees, steering their organizations towards a secure and prosperous future.