The corporate culture of growth at any cost during the past decade has exposed fundamental flaws in the way banks conducted their business and in particular how they managed it. As such, the financial crisis has highlighted the need for dramatic changes
and a move towards an enterprise-wide approach to risk management.
While banks may have had proper risk management systems in place, the prevailing atmosphere was of fast growth and fast-track treatment for risky deals with some serious errors in risk analysis. In order to get lending activities back on track, the Bank
of England recently decided going down the untried route of quantitative ease, effectively printing money in exchange for high quality assets. However, the UK market does not have any experience of how this will work. We only need to look at Japan, which in
the 1990s went through its “the lost decade” to see that simply increasing money supply is no guarantee of a quick turnaround. As such, I believe there are more efficient steps that banks can put in place to reduce risk within lending.
Rather than blame individuals, we must look at the flaws in the entire risk management system. Banks must now switch to an enterprise-wide view of all operations rather than the siloed approach to risk management that contributed to the current crisis. This
means applying technology at a business level rather than in isolation. As such, banks need to review processes and systems that can streamline administration and help achieve operational excellence.
Having an enterprise-wide risk management system in place, coupled with appropriate data capturing tools will make the firm less dependent on people, reducing the risk of human fallibility as well as increasing transparency and auditability. This approach
might offer an efficient solution to provide banks with a comprehensive overview of their lending portfolios, consequently reducing the risk of their lending activities.
Mikael Krohn, VP, EDB Business Partner UK