I was privileged to chair a master class stream at the recent Ri$kMinds Geneva conference, where we discussed topics related to enterprise wide bank risk management & the skills required to be a sound risk manager. My chairman role gave me the best seat in the house to observe some of the key issues and exciting developments within our risk world today.

I have good news and bad news… so let’s get the tough stuff over with first…

Risk Management is more independent than before the financial crisis in many banks, but the risk governance structure of most banks still falls woefully short of acceptable guidelines (from regulators or independent risk practitioners). Moreover, and most disturbing perhaps, is that the risk management function is still not considered as an equal partner to the business it oversees. Given that business strategy and its execution needs to be within the acceptable risk appetite of a bank, then one wonders if anything has been learnt from the crisis in 2008.

On a more positive note, it was heartening to hear, as a risk training consultant, the unanimous plea for more holistic, broader skills to complement the technical, regulatory and compliance expertise needed to become an experienced risk manager.

In my mind the integration of interpersonal and leadership skills with our more technical disciplines is critical.  Establishing this mix will require a commitment to training new professionals and re-shape established professionals through more dynamic training initiatives.

So, the up-skilling of risk management now has 2 prongs of attack: learning something about all the risk disciplines and bank businesses; and learning how to be a leader. This means we can no longer afford to view training as a cost; it needs to be reassessed as an investment to drive better performance through wider competencies and well-rounded skill sets.

I also agree with comments made regarding the need for qualifications across risk management.  There is no formal approach to identifying those superstars in their disciplines. Furthermore, we urgently need to enhance the reputation of the risk management in an industry where the bond of trust between banks and stakeholders has been broken. Risk management needs to be viewed as a profession not a function.

Offering a globally acceptable risk qualification or accreditation within the banking industry will go a long way to achieve these aims. If we need a surgeon to operate on us, we would research his records to determine the best and most qualified person to do the job. Why can’t we do this in banking?  Maybe, if we could then it would separate the sheep from the goats!

At Consultancy Matters our passion is to equip financial services professionals with skills to navigate some of the “rough seas” highlighted at the conference. We provide clients with strategic learning and development solutions across leadership, compliance and risk disciplines to help them chart their way and reach those calmer and safer waters.

Last week, a prominent American journalist, Bill Moyers, interviewed John S. Reed, the former CEO of Citicorp and Citigroup.  It was broadcast as part of a television series about the cause of the global financial crisis that began in late 2007.

I was especially pleased, and felt a little pride, having worked under Reed’s leadership, that he could bring such a holistic view to the scenario.  The message that Moyers was trying to deliver was a fairly common one.  To me, John Reed’s answers were more meaningful, and showed his understanding that the crisis was caused by a lack of common sense, greed fostered by weak regulation, and ignorance of some very basic lessons of lending and credit. It was really refreshing to see and hear a respected banker be honest about what happened in the nineties and noughties, and his views on how he and his industry peers played a part.

Moyers makes a strong case, particularly in his fundamental premise… that the crisis was caused by the reversal of the US Glass- Steagall act, which had separated US investment banking and commercial banking since the 1930′s.  John Reed subtly points out that the elimination of Glass-Steagall may have made the problem worse, but that it was not the cause of the crisis.

John Reed believes that “the iceberg would have been hit” regardless, due to the fact that banks and mortgage brokers were making loans that made no sense whatsoever.  He also admitted that his MIT colleagues (he is Chairman of the Board of Trustees of The Mass Institute of Technology, MIT), must also share some of the blame because their models allowed bank executives to believe that all risks could be identified and managed.

So, the crisis might have been contained, if banks had not been following risk management models that somehow ignored the fundamental risks that were being generated. Billions of dollars of mortgage securities defaulted due to ignorance of a fundamental lesson of banking – don’t lend unless you understand how you are going to be paid back!

Mr Reed acknowledges that individual home mortgage loans were being made in the United States with little regard to the ability of the borrower to repay the loan.  Through the non- bank market, many of these loans were initiated out of regulatory oversight by independent mortgage brokers and sold to investment banks which then securitized the loans and sold them to investors in the form of fixed income securities.  Common sense was ignored, partly due to the assumption that residential real estate values never fell, and that the borrowers would sell or refinance before they ran out of money to make their mortgage payments.  This aspect of the crisis was caused by terrible lending practices, with little or no regulatory oversight.  Apparently the investors that purchased the mortgage securities, and the rating agencies that reviewed them, didn’t carefully examine the loan underwriting standards.

What was the cause of the crisis? In my view, the key points from this interview were:

1. It was ignorance of the fact that the risk of “something going wrong” in the mortgage securities market, was much larger than anyone seemed to realize.
2. It was the fact that bankers, rating agencies, and regulators didn’t understand that a huge proportion of the mortgage loans being made were flawed or would deteriorate over time.
3. US regulators did not enforce basic lending standards, both within and outside of the banking system.
4. The problem was further exacerbated by the creation and distribution of these mortgage loans via securitization.

But the elimination of the Glass-Steagall Act would not have averted this crisis, although it may have added fuel to the fire.

To watch the full interview click here.

Please email info@consultancymatters.com to let me know what you think of it and my “take” on the key points that arose! For a printer-friendly PDF file of this article, please visit our downloads area.

The financial services industry is emerging from an extraordinary unsettled period. The global financial crisis was marked by market volatility, a lack of liquidity in many financial markets, and heightened systemic risks. The turmoil of the last several years has underscored the critical importance of risk management and led government officials, regulators, and industry leaders alike to set new expectations for risk management.

To find out more please see our downloads area. Please contact us for more information.

As part of its ongoing research, the Korn/Ferry Institute undertook this study to understand how risk oversight in the boardroom is evolving in the post-crisis economy. ” We interviewed twenty-six chairmen, chief executives, and board directors from companies in the United States, Europe, and the United Kingdom to gauge their attitude and approach to risk.”

To find out more please see our downloads area. Please contact us for more information.

As trusted pieces of the economy shattered, ordinary Americans had to figure out bewildering investment terms such as “mortgage-backed security” and “collateralized debt obligations” while shuffling their feet in the unemployment line.

The full story can be seen here:  Stowe man opens window onto U.S. financial crisis

Please see Arnold Ziegel’s profile on our people page.

New Name…
RiskTrain® has evolved into Consultancy Matters LLC; as our business has expanded out of  risk training to include compliance training, people management, and consulting activities, we are emphasizing Consultancy Matters as the lead brand (and legal entity) from this point forward. This will allow us to market a “suite of products and services” in addition to risk training previously delivered under the RiskTrain® brand.

New Face…….
We are pleased to announce that James Kemp has joined Consultancy Matters LLC as our Chief Operating Officer.

James is renowned for his operational management “blue chip” credentials. He has 25 years of experience in Banking, having spent the bulk of his career as a trader and manager in Citibank’s foreign exchange business. He has had management roles both in London and New York before being appointed Head of Foreign Exchange in North America.

As COO, James will be responsible for the day-to-day running of the firm, in both the USA and the UK.  Strategically, he will be working with Maddy Robinshaw, our CAO in the UK, to facilitate our continued growth around the world.
Read more about James on our website: About Us/Our People.

New Place….Location
Our new USA address (from 1st January 2011):
235 East 49th Street
Suite 2A
New York
NY 10017  USA

tel : +1 646.449.0706
fax: +1 646 449 0753

New Place….Website
Our new website and marketing materials reflect our new image, corporate philosophy and governance structure; we hope you like it and look forward to hearing your feedback!

Click to watch the Video