Overhauling risk oversight - ey.com · accountability, EY’s 2015 risk management survey of major...
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Strengthening financial risk and balance sheet management Rethinking risk management New forward-looking management processes are helping CFOs and CROs manage their banks' portfolios, capital and liquidity in times of financial stability — or volatility. © 2015 EYGM Limited. All Rights Reserved. EYG no. EK0393 Rethinking risk management: Banks focus on non-financial risks and accountability, EY’s 2015 risk management survey of major financial institutions, is the sixth annual study of risk management practices conducted in cooperation with the Institute of International Finance (IIF). A total of 51 firms across 29 countries participated in this year’s study. Help your bank adapt to a new risk management order Visit ey.com/bankingrisk Banks are changing their approach to risk management, creating proactive methods to manage non-financial risks and making front-office staff more accountable. Financial risk and balance sheet management remain top concerns for banks Banks and CFOs are under increasing pressure from investors to increase returns … Banks are focusing on new and enhanced planning and stress-testing methods … as the costs of doing business rise 57% 58% 37% 30% 30% 26% 24% 26% 35% 26% 2015 2014 Credit risk Regulatory capital management Liquidity Stress test strategy Market risk Under 5% 5-10% 10-15% 15-20% 2% 29% 20% 49% 2% Return on Equity (ROE) targets Top areas of investor focus Increased ROE Significantly, even with mitigation Modestly No effect Difficult to assess given regulatory uncertainty and ongoing mitigation Low book-to-equity price is an impediment for capital raising Costs and compensation 79% 55% 30% 13% 74% 37% 34% Business mix and further deleveraging With increasing costs, banks must rethink financial risk and balance sheet management if they are to deliver sustainable returns 68% Increased collaboration with the businesses to identify risks 68% Increased the variety of scenarios to reflect the potential risk across risk types and geographies created new stress- test methodologies in the past 12 months 55% Included operational risk events 55% Utilized reverse stress testing 66% Increased the severity of scenarios 81 % But stress testing continues to be a major challenge for the industry BANK 55% Areas where stress testing has been incorporated There are a range of obstacles to improving stress testing of firms have only somewhat incorporated stress testing into strategic planning 34% Business-unit planning 68% Recovery and resolution planning 87% Risk appetite and risk limits development and management 94% Capital planning 96% Risk management 33% Time taken to produce regulatory tests 35% Difficulty in designing plausible but realistic scenarios 41% Inadequate systems 57% Shortage of resources 59% Difficulty in extracting and aggregating data The impact of higher capital and liquidity requirements on ROE is driving significant business model change Exiting geographies Streamlining legal- entity structures Exiting lines of business Shifting out of complex, less-liquid instruments Evaluating asset portfolios 87% 43% 35% 22% 46% How much will costs rise due to combined liquidity and capital changes under Basel III?
Transcript of Overhauling risk oversight - ey.com · accountability, EY’s 2015 risk management survey of major...
Overhauling risk oversightRethinking risk managementey.com/bankingrisk
Overhauling risk oversightRethinking risk managementey.com/bankingrisk
Strengthening financial risk and balance sheet managementRethinking risk managementNew forward-looking management processes are helping CFOs and CROs manage their banks' portfolios, capital and liquidity in times of financial stability — or volatility.
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Rethinking risk management: Banks focus on non-financial risks and accountability, EY’s 2015 risk management survey of major financial
institutions, is the sixth annual study of risk management practices conducted in cooperation with the Institute of International Finance (IIF). A total of 51
firms across 29 countries participated in this year’s study.
Help your bank adapt to a new risk management orderVisit ey.com/bankingrisk
Banks are changing their approach to risk management, creating proactive methods to manage non-financial risks
and making front-office staff more accountable.
Financial risk and balance sheet management remain top concerns for banks
Banks and CFOs are under increasing pressure from investors to increase returns …
Banks are focusing on new and enhanced planning and stress-testing methods
… as the costs of doing business rise
57%58%
37%30%
30%26%
24%26%
35%26%
2015
2014
Credit risk
Regulatory capital management
Liquidity
Stress teststrategy
Market risk
Under 5%5-10% 10-15%15-20%
2%
29%
20%
49%
2%
Return on Equity (ROE) targets Top areas of investor focus
Increased ROE
Significantly, even with mitigation
Modestly
No effect
Difficult to assess given regulatory uncertainty and ongoing mitigation
Low book-to-equity price is an impediment for capital raising
Costs and compensation
79%
55%
30%
13%
74%
37%
34%Business mix and further deleveraging
With increasing costs, banks must rethink financial risk and balance sheet management if they are to deliver
sustainable returns
68% Increased collaboration with the businesses to identify risks
68% Increased the variety of scenarios to reflect the potential risk across risk types and geographies
created new stress- test methodologies in the past 12 months
55% Included operational risk events
55% Utilized reverse stress testing
66% Increased the severity of scenarios
81%
But stress testing continues to be a major challenge for the industry
BANK
55%Areas where stress testing has been incorporated
There are a range of obstacles to improving stress testing
of firms have only somewhat incorporated stress testing into strategic planning
34% Business-unit planning
68% Recovery and resolution planning
87% Risk appetite and risk limits development and management
94% Capital planning
96% Risk management
33% Time taken to produce regulatory tests
35% Difficulty in designing plausible but realistic scenarios
41% Inadequate systems
57% Shortage of resources
59% Difficulty in extracting and aggregating data
The impact of higher capital and liquidity requirements on ROE is driving significant business model change
Exiting geographies
Streamlining legal-entity structures
Exiting lines of business
Shifting out of complex, less-liquid instruments
Evaluating asset portfolios 87%
43%
35%
22%
46%
How much will costs rise due to combined liquidity and capital changes under Basel III?
