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?