Episode 4: How Has ERM Evolved Over The Last Few Years

In this installment of the Risk Intel podcast, host Ed Vincent is joined by Michael Glotz, an expert in enterprise risk management (ERM), to discuss the transformative changes occurring in the banking sector's risk landscape. Focusing just on the last few years, Glotz highlighted the evolving roles of Chief Risk Officers (CROs), regulatory frameworks, technological advancements, and other dynamic elements of risk management. In this blog post, we delve into Glotz's insights, exploring the evolving nature of ERM and providing valuable guidance for bankers seeking to optimize their risk management practices.

The Rise of Chief Risk Officers

The banking industry has witnessed a significant shift in the prominence of Chief Risk Officers. Once a rare title, CROs are now increasingly present in banks of all sizes. This change can be attributed to the escalating complexity of the banking landscape, which encompasses mounting compliance regulations, intricate product portfolios, and organizational growth through acquisitions. In 2023, three banks have already failed spreading fears of uncertainty and doubt in the banking system amongst shareholders and customers. The industry is finally recognizing the need for specialized risk management expertise and Glotz believes this will be the catalyst to make risk management no longer a nice to have...but a need to have.

“History for Chief Risk Officers isn’t that long”- Michael Glotz

Chief Risk Officers are now enjoying elevated positions within organizations. In the past, CROs often reported to members of the executive management team. However, in recent years, the reporting lines have been redefined, with CROs frequently joining the executive leadership team. This shift fosters better communication and alignment between risk management and strategic decision-making, strengthening the overall risk management framework. CROs who align risk to the banks strategic plan will give them a better chance to have a seat at the table.

Expanding Staffing Requirements

Recognizing the challenges posed by complexity, banks have allocated additional funding to expand their risk management teams. This investment is directed towards areas such as enterprise risk management, third-party risk management, model risk management, and risk appetite management. By bolstering their staff, banks ensure they have the necessary expertise to effectively mitigate and manage risks.

Technological Advancements and Risk Monitoring

Technology has played a pivotal role in revolutionizing risk management practices. Recent years have witnessed remarkable advancements in risk intelligence tools, enabling banks to automate and streamline risk-related processes. These technological solutions facilitate more efficient risk monitoring, analysis, and reporting, enabling organizations to proactively address risks and make informed decisions.

Board Responsibility and Risk Education

Board of Directors now have a heightened responsibility to ensure robust risk management frameworks are in place within their banks. Although the board can delegate this responsibility to the CEO or CRO, they are increasingly taking a more active role in risk oversight. Regular meetings with the risk committee or Chief Risk Officer allow boards to assess the adequacy of risk management tools and staffing. Recent incidents, such as failures in banks without a Chief Risk Officer, emphasize the urgency for board members to prioritize risk management and invest in the right personnel and technologies.

The conversation between Ed Vincent and Michael Glotz shed light on the significant developments occurring in enterprise risk management for bankers. Embracing the rise of Chief Risk Officers, expanding staffing requirements, optimizing reporting structures, leveraging technological advancements, and emphasizing board responsibility are critical steps for banks to enhance their risk management practices. By adopting these best practices, banks can navigate the evolving risk landscape with confidence, safeguarding their stability, and ensuring long-term success.

Listen or watch the full recording below.