What’s next for bank board risk governance?
Recalibrating to tackle new risk oversight expectations
Since late 2014, when we last analyzed banks’ board risk committee charters, many institutions have made large gains in documenting compliance with expectations from the Fed’s Enhanced Prudential Standards (EPS), the Office of the Comptroller of the Currency’s (OCC) Heightened Standards, and the Basel Committee for Banking Supervision’s (BCBS) guidelines on bank corporate governance. With analysis of 2016-2017 charters of risk committees, this report appears to confirm that systemically important US banks, their global peers, and US-based nonbank systemically important financial institutions (SIFIs) have come a long way to increase the level and breadth of their oversight of risk management. However, evolution in the risk environment is creating new governance priorities, and articulating clear mandates around them is an all-important step; hence, despite significant progress, there is likely still work to be done.
Given a more complex and interconnected operating environment, the risk committee should take a proactive role in: fully appreciating and understanding the nature of risks to which institutions are exposed; reevaluating or reconsidering the bank’s risk strategy and appetite in the context of these new and shifting risks; and reengineering mechanisms to assign accountability and oversee management’s execution of risk strategy and appetite. In this paper, we present the results of our analysis of board risk committee charters, along with guidance for bank boards as they confront this evolving risk environment.