Article

Aligning risk and the pursuit of shareholder value

Risk transformation in financial institutions

Transformative shifts in the financial services industry demand transformative responses to enhance capital, operational, technological, and risk management efficiency — and shareholder value.

Executive summary

Financial institutions of every type face continuing pressure from regulators on one side and shareholders on the other. Working to balance the former’s expectations for higher levels of capital and the latter’s for superior returns, senior executives and boards are focusing on improving risk management and governance and deploying capital more efficiently. Many leadership teams have reviewed their institution’s mix of businesses and pricing of risk with an eye toward enhancing margins, reducing costs, and increasing investor returns.

 

In the process, however, they have learned that ad hoc or piecemeal responses to regulatory changes and shareholder demands may not be equal to the challenges they face in areas such as capital, costs, economic conditions, and risk management. Globally, many banks are working to meet the Basel III capital requirements, and generally need to improve their risk weighted asset (RWA) usage. Worldwide economic recovery remains weak, negatively impacting lending and margins. Cost pressures drive the need to optimize head count and rationalize infrastructure spending while improving operating efficiency. Risk management requires strengthening as regulators scrutinize the conduct of business and raise the bar for monitoring, reporting, and mitigating risks.

Aligning risk and the pursuit of shareholder value

As senior executives and boards survey the progress they have made to date and the challenges before them, the following questions frequently arise:

  • How, specifically, are regulatory and economic developments impacting shareholder returns, and how are they likely to do so in the future?
  • How can we provide the right information at the right time to the right people across the organization to enable them to make responsive, risk aware decisions?
  • How effective is our organization in terms of risk management and governance, and where do we need to improve?
  • What do we need to do to maintain regulatory compliance and confidence, and achieve strategic goals while controlling costs?
  • How do we pursue, sustain, and communicate an institutional risk profile that is responsive to both regulatory and investor expectations?
  • How do we drive risk management standards into the daily activities of the business units, on the desk and in transactions?

Questions like these may be impossible to answer without an organizing point of view. This Deloitte paper presents such a point of view. It also highlights some cornerstone issues that executives and boards should consider addressing in this transformative environment. We begin with an overview of forces now impacting key drivers of shareholder value at financial institutions.

Inside magazine issue 7, February 2015

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 - 4.6mb
Did you find this useful?