Mary Tuuk, EVP and CRO of Fifth Third Bank, spoke at Friday morning’s general session. US Banker Magazine has named her as one of the top 25 women to watch in banking, and she gave an interesting talk on the CRO perspective, “Leveraging Risk Management for Strategic Advantage.”
After discussing an historical perspective on the recent financial crisis, she discussed some of the lessons learned. First, risk management was too siloed from the rest of the institution. In many cases, she said, risk management runs stress tests, etc, but tended to be isolated from business decisions. Also, they failed to recognize the correlation of risks across domains, e.g. credit risk, turned to liquidity risk, turned to reputational risk, which exacerbated the liquidity risk, and led to operational risk as the bank had to make new kinds of decisions. She also commented that this issue of risk culture is important: how are decisions really being made?
She showed an interesting graphic of how risk management can be a strategic advantage. She defines Economic Net Income as accounting net income – expected loss – cost of capital. In this way, risk management can help risk-adjust earnings for the expected loss of, say, a particular client relationship. Her graphic showed how those companies that don’t do this kind of evaluation will be stuck working with customers that those who do have turned down.
She ended her discussion on how convergence drives advantage. She talked about five areas of convergence: integrated governance (transparent decision-making); risk identification, aggregated measurement and monitoring; defined appetites; stress testing; and, risk culture. She gave some examples of how to assess risk culture:
How is risk management viewed? As the police or business partners?
How is bad news treated? Are people willing to share bad news?
Do back office personnel and others feel empowered to raise issues?
Tags: ABA Risk Management Forum