Creating the bank enterprise risk management function of the future
Abstract
Banks today face an unprecedented pace of change and high uncertainty, dealing with significant threats ranging from bad employee behaviours to sophisticated cybercrime, trade wars and climate change. These trends severely challenge the formulaic approaches to enterprise risk management (ERM) in place at many banks today. McKinsey & Company’s work supporting leading global banks shows that ERM functions must transform themselves, so they can guide their institutions through threats and opportunities while simultaneously meeting the expectations of all stakeholders. This paper discusses the abilities that the ERM function of the future will need, across three dimensions:
Delimiting the bank’s appetite for risk taking: supporting banks to set limits on risk taking dynamically, accounting for the institution’s values, strategy, skills and competition.
Detecting new risks and weaknesses in controls: working with businesses and functions in an agile way to understand new threats and changes to existing ones.
Deciding on the risk management approach: implementing more agile governance processes and approaches to risk mitigation and controls.
Enhancing these abilities requires ERM to take four steps:
Define its own vision and mandate for creating value for the bank.
Shift its ways of working in core areas, with an agile approach that applies cross-functional teams and rapid decision making.
Set its responsibilities beyond the core in areas of risk management that benefit from transparency and coordination with businesses and functions.
Ensure the right ERM talent, with new capabilities and knowledge, including a better understanding of the business, digital innovations and agile management.
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Author's Biography
Hans Helbekkmo is a Partner in McKinsey’s San Francisco office. He is a seasoned risk management professional with over 20 years of experience as a consultant, bank practitioner and solution provider. He helps institutions across all aspects of risk management, with an emphasis on credit risk, enterprise risk and capital management, including key regulatory topics such as CCAR and Heightened Standards. He has deep risk analytics experience, including traditional models as well as AI/advanced analytics. Hans joined McKinsey from Union Bank in 2012, where he was Head of Credit Portfolio Risk. He holds an MBA from INSEAD and a MEng in chemical engineering from Cambridge University.
Cindy Levy is a Senior Partner in McKinsey’s London office and leader of the firm’s global risk practice. She has broad experience helping financial institutions address their most complex business challenges, with a particular focus on risk strategy, enterprise risk management (ERM) and risk culture. She has helped major global banks diagnose and transform their ERM, developed broad corporate and investment banking strategies and led major bank restructuring projects. Cindy holds an MBA from Stanford University and an AB in Economics from Harvard University.
Olivia White is a Partner in McKinsey’s San Francisco office. She advises financial institutions on issues across strategy, organisation, risk management and operations. Olivia has helped multiple institutions transform their enterprise-wide approach to risk management, drawing on deep expertise in risk appetite, identification, effectiveness and efficiency; organisation and talent; culture and other areas. Olivia has also worked extensively on financial inclusion and broader economic development, with a primary focus in emerging markets. She holds a PhD in physics from Harvard, an MSc in mathematics from Oxford University where she was a Rhodes Scholar, and a BA in physics and mathematics from Stanford University.
Citation
Helbekkmo, Hans, Levy, Cindy and White, Olivia (2019, September 1). Creating the bank enterprise risk management function of the future. In the Journal of Risk Management in Financial Institutions, Volume 12, Issue 4. https://doi.org/10.69554/IFVQ1353.
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