Risk Management Watch: Two More CROs, Growing Regulatory Pressure to Boost ERM
Synovus Financial recently announced it has established a new Chief Risk Officer role, reporting directly to the firm’s CEO. Synovus appointed Mark Holladay to the newly created position of CRO, just one week after the financial services firm said it will cut about 650 jobs, or 9% percent of its workforce, over the next two years. Holladay’s new responsibilities include overseeing the Enterprise Risk and Credit Risk Management areas of the company. “Establishing the Chief Risk Officer position is a significant step in ensuring we maintain high, stringent standards for managing enterprise risk,” said Richard E. Anthony, Chairman and CEO of Synovus.
Meanwhile, Wachovia announced it has named financial services industry veteran Kenneth Phelan as Chief Risk Officer under new Chief Executive Robert Steel. According to Wachovia, as Chief Risk Officer, Phelan will be responsible for credit risk management, market risk management and operational risk management across all lines of business. He will oversee risk strategy, risk policy, risk analytics and modeling, portfolio methodology and risk reporting for the corporation.
The appointments at Synovus and Wachovia are just two additions to the long…and growing…list of companies scrambling to add or replace Chief Risk Officers (CROs) to their top management ranks. That list includes Fannie Mae, First Financial Bancorp, Commonwealth Bank, Citigroup, Morgan Stanley, State Street, Ambac, PrivateBancorp, Bank of Montreal, CIFG Holding.
The emphasis on risk is growing. Following news of a bankruptcy at Lehman Brothers, the emergency sale of Merrill Lynch and more trouble at AIG, a growing number of firms are actively looking to avoid the mortgage problems that have taken a toll on their balance sheets. Executive search firm, A.E. Feldman, says this trend has increased the significance and number of risk management jobs. Industry veterans recruiting for A.E. Feldman, point out that Chief Risk Officers who have been tested by previous market cycles are being handed more power. Investing in complex mortgage-backed securities is what led financial institutions into the current credit and mortgage crises, according to industry experts. Now, as firms struggle to minimize losses, experienced Chief Risk Officers and Risk Managers are essential.
Hindsight is 20/20
New research finds that better risk management would have lessened the more than $400 billion in asset write-downs among the financial services industry triggered by the current credit crisis. According to a global survey of 316 financial services executives, more than 70% of respondents believed that the losses stemming from the credit crisis were largely due to failures to address risk management issues.
The survey conducted in July 2008 by the Economist Intelligence Unit (EIU) on behalf of SAS, also finds that, now more than ever, enterprise risk management (ERM) programs and components are in high-demand to help institutions aggregate risk and treat it holistically.
More than half, 59%, of survey respondents say the credit crisis has prompted them to scrutinize their risk management practices in greater detail. Additionally, in anticipation of closer scrutiny from regulators, many institutions are reviewing their risk management practices.
“This survey is evidence that the risk management needs of financial institutions are evolving to go beyond regulatory risk and must break down traditional risk silos to drive toward a firm-wide risk view,” said Alastair Sim, Global Director for Risk, SAS.
Appearing before a recent Senate Banking Committee hearing, Federal Reserve Vice Chairman, Donald L. Kohn and Scott Polakoff, Deputy Director of the Office of Thrift Supervision (OTS) stressed the importance of a broad, enterprise-wide, top-down view of risk management. Their words underscore changes already taking place in a number of boardrooms. Business leaders are gravitating towards enterprise risk management in assessing a firm’s strategic objectives and associated risks.
Risk management is most successful in complex organizations when it is much more than simply a division of the firm, according to Polakoff. “We encourage firms we supervise to have a robust discussion about risk and tolerances at every level of the organization, beginning with the boards of directors and continuing through to line managers. This process, while buttressed by reporting from the enterprise management architecture, infuses a risk appetite, risk tolerance, risk understanding and risk management ethic throughout the organization, clearly conveying expectations and providing the foundation for strong management technique and minimizing the opportunity for unwelcome surprises,” he said.
Respondents in the EIU survey identified several challenges such as data and company culture, which have affected the implementation of comprehensive risk approaches. For many executives at financial services firms, access to relevant, timely and consistent data is listed as a major obstacle. In addition, almost half of the respondents believed fostering a culture of risk management was the most widely encountered challenge.
Looking ahead, the survey finds the expectation of growing regulatory pressure will increase the implementation of ERM. In the wake of recent recommendations from regulators and industry groups, rating agencies are likely to step up the pressure on firms to adopt best practice in risk management systems. Of those polled for this report, 72% say regulators are exerting pressure on their firms to implement or refine an ERM strategy.
To learn more or inquire about job trends in risk management the lines of communication are open. Contact the Mitch Feldman, President of A.E. Feldman, and the firm’s executive recruiting team here.
