Bank board risk governance


Bank board risk governance

Driving performance through enhanced risk oversight

During six consecutive quarters in 2013 and 2014, two groups of large US banks showed substantially different operating results. The average Return On Average Assets (ROAA) in one group was 57 percent higher. Otherwise—in terms of average total assets and other characteristics—the two groups were roughly similar.

Executive Summary

A look at board risk committee charters of large banks

One key difference between the two groups was that the board risk committee charters of the higher-performing banks documented the need for a risk expert.

Of course, correlation does not mean causation, and because it is only in recent times that the more rigorous risk governance practices have been introduced, it will be a while before one can examine the long-term relationship between robust risk governance and financial performance. Requiring a risk expert on the board risk committee is just a strong sign of a bank’s commitment to risk management and governance, which, in theory, can exert positive influence on performance.

Many banks seem to have taken this lesson to heart. Efforts to strengthen risk management and instill appropriate policies and a risk intelligent culture throughout the organization have become top priorities for many banks. Major failures in risk management and oversight, some carrying heavy costs, show the stakes are high. Board risk committees, as the highest level of risk oversight, and crucial promoters of the “tone at the top,” are increasingly focused on this transformation.

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Inside Magazine - Global edition 2016

Inside is Deloitte’s quarterly magazine offering an exclusive insight into best practices, trends and opportunities faced by our clients across all industries.

Inside focuses on the main hot topics relevant for the market (Asset management, Banking, Insurance, Public sector, Healthcare, Private equity, Real estate, TMT, Manufacturing and consumer business, Transport and logistics).

PDF - 12.6 MB
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