Culture and Reputation Risk Among Hot Topics at RMA’s 2017 Annual Risk Management Conference

RMA's Annual Risk Management Conference was recently held in Boston, Mass., November 12–14.

In a thought-provoking keynote by Bank of America Chairman and CEO Brian Moynihan, Moynihan discussed lessons learned from the financial crisis.

He advised that “you have to have diversity in terms of businesses and in terms of mixing the balance sheet, which drives sustainability. You also have to be prepared to compete in the good times, but also worry about the bad times at every moment, and that’s the value of stress testing.”

He warned that, as risk professionals, “We all believe in models, which is critical to what we do, but if the 100-year flood is next year, you’re out of business. Balance is how you avoid this.”

In a chief risk officer panel discussion moderated by Lou Dunham, senior vice president and senior director, Risk Consulting, Ardmore Banking Advisors, panelists who are managing the spectrum of risks at their respective community banks discussed their lending and credit cultures, risk appetite, and bubbles in the market.

RMA Board Member Sarah Cowan, senior vice president and chief credit officer, National Bank of Middlebury, noted that her institution is located in a rural area, so they are faced with low growth. “We have more liquidity than other banks struggling with deposits. This has created pressure to review different types of lending and caused us to reach out for wholesale opportunities. We started to allow purchases of prime, indirect loans and are adamant on knowing the market we’re in. We usually don’t lend to outside markets,” she said.

The topics of risk appetite and current and potential bubbles in the market were also discussed.

We don’t have a formal risk appetite statement, but “culture is a moderate risk in our institution,” said Michael Nassy, RMA board member and executive vice president and chief credit officer, First Virginia Community Bank. From a market bubble standpoint, “we are seeing a lot of activity in construction and that concerns me from a concentration perspective. We’re seeing a lot of multifamily constructions and, overall, the D.C. market is sound,” he said.

John Shain, president, Automated Financial Systems, moderated a panel of chief risk officers who discussed the major concerns they have heading into 2018. Shain asked the group how they approach the balance of controls that regulators have focused on in exams versus the business needs in their organizations.

“The regulators have been highly focused on the control environment since the financial crisis,” said Malcolm Griggs, chief risk officer, Citizens Financial Group. The regulators have noted that “operational risk is going to continue to be a focus in 2018 and that includes the control environment, which includes the risk and control self-assessment process, the identification of key controls, and testing of key controls. The pendulum has swung too far. We are trying to identify what a significant risk is that requires a key control and, in turn, that key control needs to be tested. There are too many things today that are labeled key controls,” he said.

“Many of the controls, assessments, and regulations are needed,” said RMA Board Member Amanda Norton, chief risk officer, Consumer and Community Banking, JPMorgan Chase and Company. “We’re taking a step back to try to identify the key risks and whether we have those appropriately controlled either through technology or some other mitigating control. It’s a partnership owned by the business and closely attended by our second line of defense and audit functions.”

In a session on portfolio management and risk appetite, the speakers discussed how loan growth goals can be managed in concert with concentration limits, and your bank’s risk appetite will best position your future balance sheet.

Rick Parsons, author of RMA-published books, “Broke: America’s Banking System,” and “Investing in Banks: Strategies and Statistics for Bankers, Directors, and Investors, advised that banks “should not spend too much time on the here and now, but rather more on cycles.”

He offered potential topics that could be presented to your Board Risk Committee, which include talking about GDP and inflation assumptions; discussing what competitors will do and how this may or may not impact whether it’s time to modify your risk profile; and cost of deposit/net income margins assumptions.

Additional highlights of the conference will be published in the February issue of The RMA Journal.

RMA thanks each of this year’s sponsors, exhibitors, and speakers who contributed to the success of the conference.

Please save the date for next year's Annual Risk Management Conference, November 4–6, 2018 in National Harbor, MD.

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