Interviews conducted with 19 large and global financial institutions reveal significant differences in capabilities and applications, two areas used to evaluate how effectively institutional risk appetite is transmitted throughout an organization. For many institutions, establishing a risk appetite framework through governance, culture, and metrics remains a challenge.
Although a risk appetite statement exists at all the institutions surveyed, the research showed that many have failed to execute it according to the established risk management framework. Deficiencies included inability to manage down concentrated risk exposures, a diminished role for the risk management function, and straying outside of acceptable geographic or product bounds.
In contrast, leading organizations had made an early investment in a risk appetite supported by senior management, and used their "risk culture" to communicate risk appetite in a way that ensures it becomes part of day-to-day decision-making throughout the organization.
The research concludes that all banks could improve along several dimensions: commitment from top leadership to clearly articulate risk appetite, investments in data management and infrastructure, and better monitoring of the entire organization's compliance with stated risk appetite objectives, across its operations.
The March issue of the RMA Journal highlights findings from this joint Oliver Wyman-RMA research. To obtain a copy of the article, please refer to the right-hand panel.
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