I have been reading of late in the financial press and various blogs how bank Boards are, all of a sudden embracing a culture of risk management. Suddenly they are into governance issues too. What rot! Where have the banks and their Boards of Directors been
these past ten years or so? And at the same time too, where have the regulators been?
Basle II, as the basic risk management text for the world's financial industry has been by and large ignored by the people it was intended for - and that goes for both the banks and the regulators. The questions of governance and responsibility are pretty
well documented throughout the Accord. Basle II was intended to be implemented in totality not as a "data mining exercise" which it ended up being, to the immense satisfaction and profit of the technology vendors.
Now, all of a sudden we have these pathetic scenes of bank Boards running around bleating all the catchwords; "risk appetite", "transparency", "governance", "employee awareness", "risk functions" and "chief risk officers". And no doubt the regulators seeing
all this activity will let out satisfied grunts and return to their post luncheon slumbers.
Looks to me very much like the same flock of sheep all over again.
Banks have already had one chance to do what they had to when it comes to risk and risk management. They messed it up - but as a reward they were all saved from the fire while the rest of the economic population lost out (and will continue to pay for this
for years to come).
Banks now have a second chance to get this done right. It is time for bank Boards to become pro-actively committed to risk management in all its facets, credit risk, liquidity risk and operational risk. It is time too for Regulators to focus more sharply
on risk governance in their analysis of the health of banks. And as at least one commentator has suggested it is time that investors, shareholders and customers start to differentiate banks on the basis of how they manage their risks and their business.
Perhaps what we need is a published "Risk Rating" for all banks. How about all financial advertisement material carrying this rating much as the "Health Warning" carried on cigarette packs. Maybe then we would get bank Boards to stop playing lip service
to what they should be doing all these years and get down to doing it.
Until then, I look at all this activity and all the pronouncements and don't believe a word of it.