When it comes to financial services risk management, many financial institutions seem to have risk management nailed down, from system implementation through processes and governance. However, when analysts at MountainView Financial Solutions, a Situs company, dive deep into risk management discussions with industry partners, we find that even the most well-organized and well-staffed institutions require regular self-evaluation to determine whether their approach to risk management is both tactical and strategic. While many of the challenges we see are unique to a specific risk function, often such challenges are a byproduct of broader risk management myths that cause financial institutions to make costly errors. Here are three key myths to avoid when developing your risk management approach:
In the current economic and regulatory environment, your financial institution’s Asset-Liability Committee (ALCO) has a lot to think about regarding compliance, ranging from liquidity risk, interest rate risk, investments, funding sources and related issues. However, if your ALCO is concerned only about compliance, your financial institution may be missing out on a huge opportunity.
At banking organizations, financial model validations can be simply viewed as a necessary task on a checklist for following regulatory guidance. Some institutions also believe that the quality of a model validation is less important when the institution or business line is successful and when local, regional and national economies are all thriving.
What is your strategy for implementing CECL? That’s a question an increasing number of financial institutions are being forced to ask and answer. No longer just impacting accounting and finance, the tentacles of FASB’s CECL standard have made their way to organizations’ model risk, credit risk and information technology (IT) groups. If CECL is touching various aspects of an organization, is it feasible for financial institutions to view it myopically, as an accounting issue alone?
The rush to collect more data is becoming a priority for many organizations that believe that by collecting more relevant data, they will have an information advantage over competitors. There is no doubt that the data opportunity is unprecedented and may even represent the biggest driver of business growth and transformation across a wide range of industries, influencing business models, products, infrastructure, marketing effectiveness, and even altering how we think about currency. In the financial services and real estate finance industries, data provides information about everything from borrower stability and product cross-sell opportunities to portfolio and asset value.