1. Risk is a team sport.
If anyone claims they fully understand all the risks facing a financial institution today, they’re not being honest. The operating environment has grown exponentially more complex. Products that were standard—and regulator-endorsed—in the early 1980s could invite criminal scrutiny today.
While risks are numerous, they can still be grouped into categories such as credit, operational, fiduciary, legal, compliance, and so on. The key is to rely on subject-matter experts and to make sure they communicate regularly with each other. Early in my career, bankers were poor at understanding risk at the enterprise level. Today, Enterprise Risk Management is an entire industry unto itself.
That said, ERM has too often become a ritual rather than a discipline. Done properly, it is essential, regardless of institution size.
Consider product development. Financial institutions have become highly effective at designing innovative credit products, aided by technology. Too often, however, we fail to ask a basic operational question: Can our systems and people actually support this product? Given the generally antiquated state of bank and credit union infrastructure, the answer is frequently “no.” The result is a patchwork of manual workarounds—prime territory for errors and, therefore, risk in its most basic form.
