Kevin M. Blakely says greater board-level risk expertise, incentive compensation reform, and direct involvement of CEO in promoting risk management are key.
Philadelphia (June 19, 2008)—RMA President and CEO Kevin M. Blakely testified today before the U.S. Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment at a hearing on the subject of risk management and its implications for systemic risk.
“Difficulties notwithstanding, the current environment affords an excellent opportunity to learn from mistakes and improve risk management processes going forward,” Blakely said. “As we muddle through the misery, we are all smarting from it and smarter for it.”
In his testimony, Blakely stressed that financial institutions need to raise the profile of risk management throughout their companies. Risk management must be the responsibility of every employee, starting at the top with the CEO. He addressed a number of issues and concluded with the following recommendations:
- Institutions should add risk expertise to their boards of directors. Boards can also help in the risk management effort by creating incentive compensation systems that encourage management to understand and actively engage in the practice of risk management.
- CEOs should relentlessly promote management’s responsibility for risk and directly participate in the management of risk.
- Regulators should continue their current focus on risk governance within financial institutions. Regulators can and should share the knowledge they glean with regard to successful risk governance at institutions under their purview.
- Regulators should continue to perform scenario analysis on important sectors of the industry, such as the credit derivatives market, to anticipate potential threats to the financial system and the national economy.
“There is recognition within the industry that mistakes have been made. Major mistakes. And there is also a genuine determination that, as an industry, we need to do better,” Blakely stated. “Whether solutions come from bank management, regulators, or legislators, we must be careful not to compound an already tenuous situation.”
About RMA
Founded in 1914, The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry. RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has 3,000 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 20,000 risk management professionals who are chapter members in financial centers throughout North America, Europe, and Asia/Pacific.
Contact:
Meg McBride
RMA Public Relations
215-446-4110