seeking new revenue streams are looking for new products and innovative ways to
reach customers. These efforts must be tempered by the bank’s appetite for risk
whether it is operational risk, credit risk, or reputation risk. During RMA’s
most recent Credit
Risk Management Audio Conference, two bank leaders discussed
the due diligence that new products/services must undergo before they can be offered
to the public.
Nancy Foster, Park Sterling Bank, and Managing Director Kent Kirby, Portfolio
Credit Risk, Commerce Bank discussed the risk management challenges posed by
new products and services. They defined strategic risk as internal decisions
and external factors that can threaten an institution’s ability to achieve its
strategic objectives. Understanding the implications and the impact of the decisions
the bank makes are critical.
panelists discussed the importance of a sound enterprise risk framework and a
formal risk governance program. The panelists also shared how their banks
define strategic risk for purposes of the overall risk appetite statement. Foster
described her organization’s qualitative strategic risk appetite factors as,
most importantly, only pursuing those business opportunities that are
consistent with the bank’s stated business strategies and that such
opportunities are not commenced without the commensurate management and staffing
required and without adequate capital levels.
outlined the major focal points that must be addressed when considering new
products and services. Questions that should be asked include:
- How does the product align with bank strategy?
- Are the risks adequately identified?
- What are the risks, what could go wrong, and what
must be done right?
- Can the risks be mitigated and, if so, how?
- What is the financial justification of the
product from an ROI standpoint?
- Does the bank have the necessary infrastructure
in place to implement and support the new product, or can it reasonably be
panelists agreed that banks can fall prey to easy misses when assessing
strategic risks. These include not understanding the big picture and failing to
identify all of the unknowns. Equally as important as having sufficient
resources, is having the right people at the table with the right skill set. Banks
need to either have the appropriate level of expertise in-house to properly
evaluate a product or hire independent contractors.
Join us on Tuesday, March 14, 2017
for the next offering in the Credit Risk Management Audio Conference
Series: Data Quality and Integrity.