Growth Risk Management for a New Era

Some bankers might jokingly paraphrase Ronald Reagan by saying the nine most terrifying words are: “I’m from risk management, and I'm here to help.” Traditionally, bank executives have viewed risk management as an obstacle to overcome rather than a strategic asset. This outdated perspective overlooks the crucial role that a well-calibrated growth risk management strategy plays in strengthening a bank’s long-term success and protecting its stakeholders.

Now, at a pivotal moment for the banking sector, growth risk management is emerging as an essential approach. The new presidential administration has signaled a commitment to rethinking regulation and encouraging innovation, creating new opportunities for banks to align risk management with their growth strategies. However, this does not mean banks should expect a regulatory free-for-all. While the policy environment may become more conducive to innovation, change in the financial sector is likely to be measured and deliberate. Proposed appointees to senior banking oversight positions are seasoned regulators, suggesting that reforms will be implemented with careful consideration rather than sweeping deregulation.

The current landscape may offer banks with ambitious growth strategies more runway than they’ve had in recent years, providing the flexibility to scale thoughtfully. At the same time, regulatory oversight is shifting toward a more innovation-friendly stance, reducing some of the obstacles that previously discouraged new approaches. However, this does not diminish the importance of adhering to solid business practices and maintaining financial discipline—sustainable growth depends on a strong foundation and sound strategy.

To succeed, risk management must be embedded in the growth strategy, anchored by three essential pillars: soundness, profitability, and targeted expansion—prioritized in that order. Any growth initiative that compromises a bank’s fundamental stability is unlikely to succeed, and profitability must remain a core focus as institutions scale.

Achieving this balance requires a shift from traditional, siloed risk management to a more integrated approach. Rather than treating credit risk, liquidity risk, operational risk, and regulatory compliance as isolated concerns, enterprise risk management (ERM) connects these key exposures. This interconnected strategy allows banks to manage risk in a way that supports, rather than constrains, growth—enabling them to scale responsibly while maintaining financial discipline.

To implement this approach effectively, banks must take a candid look at their organizational weaknesses and move swiftly to strengthen vulnerable areas—whether internal or regulatory. This requires both proactive oversight and a culture that encourages risk awareness without stifling innovation.

A strong ERM framework not only mitigates risk, but it also enables leadership to pursue both organic and inorganic growth opportunities with confidence. Organic growth may come through new products, technology, or market expansion, while inorganic growth can include mergers, acquisitions, joint ventures, and strategic partnerships. In both cases, a well-calibrated risk management strategy ensures that opportunities are pursued strategically rather than hesitantly.

Ultimately, bank executives must instill a mindset across all functions that an overly-cautious approach to growth can be just as detrimental as excessive risk-taking. In today’s competitive, dynamic market, a consistently risk-averse approach may erode profitability and hinder the investments needed to meet evolving customer needs. Institutions that fail to adapt risk positioning themselves as obsolete. By balancing proper risk management with strategic ambition, banks can chart a path toward sound, profitable growth while continuing to serve their customers effectively.

Scaling With Confidence

For banks with the right risk management foundation, today’s shifting regulatory landscape presents a strategic advantage. Those positioned as potential acquirers can capitalize on opportunities for expansion, but only if they can demonstrate scalable risk frameworks to key stakeholders.

Regulators must be assured of a bank’s ability to manage increased scale effectively. Acquired teams need confidence in the organizational stability of their new institution. Bank boards and major shareholders must be convinced that growth initiatives align with sound, profit-driven, long-term strategic objectives.

By embedding well-grounded risk management into their expansion plans, banks can scale with confidence—ensuring that growth is both sustainable and beneficial to customers, employees, and investors alike.

Lessons From the Past

Recent history underscores the importance of embedding soundness and profitability into a bank’s growth risk management strategy. The failure of Silicon Valley Bank (SVB) in 2023—and the broader stress it placed on the banking sector—highlighted the critical need for reliable liquidity access and robust capital management.

Yet at its core, the SVB crisis was not simply a failure of risk controls; it was a failure of strategic thinking around the bank’s business model. Careful, forward-looking consideration of business model choices must be foundational to any institution’s risk strategy. Without this, even otherwise well-capitalized banks can find themselves vulnerable in moments of market stress.

The crisis also reinforced that risk management must be a core leadership competency, not an afterthought or a compliance exercise. Banks that proactively integrate risk oversight into their strategic decision-making are better positioned to withstand volatility and maintain stakeholder confidence.

A strong risk management framework is not just a defensive measure—it can be a competitive advantage. Banks that prioritize stability and resilience can build a reputation for reliability, attracting both customers and investors across economic cycles. This principle extends beyond financial risk to emerging areas of concern, such as data security and cyber resilience, where proactive management is becoming an essential trust factor for banking clients.

Lessons for the Future—AI and RegTech

A well-calibrated growth risk management strategy not only mitigates downside risks but also enables banks to act swiftly when opportunities arise. In an era of rapid technological advancement and evolving regulatory frameworks, banks that integrate innovation into their risk management approach will have a competitive edge.

Emerging technologies such as artificial intelligence (AI) and regulatory technology (RegTech) are accelerating opportunities for expansion. Banks of all sizes can explore new geographic and product adjacencies, while strategic investments in data management and AI-driven tools can enhance both operational efficiency and decision-making. Robust data governance will be essential—not only to support internal risk frameworks but also to facilitate improved regulatory compliance. Automating controls through RegTech solutions can enhance both safety and efficiency, strengthening banks’ relationships with regulators.

Some institutions are already demonstrating the benefits of a proactive approach to growth risk management. Meanwhile, many institutions are demonstrating that it’s possible to navigate growth challenges while maintaining strong risk management principles, whether through innovative product offerings, targeted relationship strategies, deeper client engagement, geographic and distribution expansion, or M&A.

History has repeatedly shown that unchecked growth can lead to instability—lessons that will become evident once again when the next economic downturn arrives. By contrast, a disciplined approach to growth risk management reduces the likelihood of sacrificing stability and profitability while creating a framework for sustainable expansion.

In this new era of regulatory evolution and technological transformation, banks that embed risk management into their growth strategies will be best positioned to build lasting value for their stakeholders.

Mark Midkiff is a former chief risk officer, a current board director, and a special advisor at Ludwig Advisors. Mark can be reached at midkiffmark@ymail.com.