Remodeling Risk: Trends impacting Risk

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Remodeling Risk: Trends impacting Risk

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The banking industry has led the way in developing and adopting technology to manage financial risk.  According to a survey by American Banker Executive Forum, large Wall Street banks have made significant investment in risk systems during the Great Recession in anticipation of new regulation.

Now it appears that “72% of all banks are planning to make purchases of risk systems over the next 12 – 18 months.  This sentiment is being echoed at conferences across the country and is a trend that may have room to grow.  Mid-tier banks are now jumping into the market for technology to manage risk and a few interesting trends have emerged.

According to the survey results, “banks with more than $10 billion of assets are satisfied with their enterprise risk systems yet 36% of small banks plan to implement an enterprise system.” “Firms continue to want to chop down the silos and provide more information across disciplines,” says Michael Versace, research director of IDC.

Improved management of regulatory risk is the trend that is driving increased investment in risk tools.

Secondly, revamping credit models to account for counter-cyclical trends in the economy are forcing risk professionals to rethink capital management, counterparty risk and adjustments to risk-weighted assets. 

Thirdly, social media is becoming a bigger factor in how firms use technology to manage risk.  Social media now presents a great deal of potential for data mining for market intelligence.

Trend #4 involves how risk is priced.  Banks are looking for ways to improve how they adjust to changes in customer behavior.  Integrating capital requirements into their systems for evaluating credit risk allow firms to allocate capital more efficiently as customer accounts change over time.

Model validation is trend #5.  Banks have incorporated a host of new risk models which are costly to maintain and update frequently.  The Officer of the Comptroller of the Currency has issued guidelines for best practice in model validation requiring banks to devise cost effective approaches for ensuring existing models, and their assumptions, are still relevant given changes in the business environment.

Trend #6 right-sizing dashboards with the key metrics customized for each firm.  Customized dashboards give senior executives the information they need in the way they expect to see it. 

Real-time and continuous risk monitoring is trend #7.  Risk solutions must be fine-tuned to monitor critical risks allowing for human intervention on a just-in-time manner while ensuring that routine limits remain in line with expectations.

Trend #8 looks at the integration of risk systems.  Most silos within many firms have been artificially created by the technology silos that exist to address spot solutions or business processes.  Integrating risk systems breaks down silos allowing for a richer line of sight to enterprise risks.

Trend #9 is Big Data and the use of in-memory computing of existing database technology. 

The American Bankers Executive Forum study demonstrated that a variety of vendors are being used today to address these trends.

What these trends represent is the growing importance firms are placing on the management of risk and the tools needed to assist them in tackling real business problems.

TheGRCBlueBook mission is to become a global risk and compliance community site and resource portal for sharing best practice across all highly regulated industries.  A one stop source for all things risk and compliance related.

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